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Informist, Thursday, Apr. 2, 2026

--India's 1-year OIS ends at 6.37%, highest closing level since Jan 23, 2025 

--India's 5-year OIS ends at 6.87%, highest closing level since Oct 3, 2023 

By Janwee Prajapati

MUMBAI – Overnight indexed swap rates rose Thursday, tracking a rise in crude oil prices and US Treasury yields, after US President Donald Trump said he will strike Iran "very hard" in the next two to three weeks, dealers said. Some expectation of a hike in the Reserve Bank of India's repo rate as early as next week also pulled up swap rates, they said.

The one-year swap rate ended at 6.37%, the highest closing level since Jan 23, 2025 and up from 6.24% Monday. The five-year OIS rate ended at 6.87%, up from 6.80% Friday and the highest closing level since Oct 3, 2023. Money markets were shut on Tuesday and Wednesday. The total notional trading volume of deals reported on Clearing Corp. of India Ltd.'s derivatives trading platform was INR 672.30 billion, sharply higher than INR 349.20 billion on Monday.

Some traders hit stop losses as the five-year swap rate rose above the key level of 6.80% after opening lower, dealers said. US Treasury yields firmed up on Thursday after Trump's comments that the US would bring Iran back to the "Stone Age" Traders had expected Trump to hint towards a peace deal or ceasefire between the two sides. But contrary to expectations, Trump's comments signalled a prolonged war in West Asia, dealers said. Brent crude oil for June delivery, which had eased to below $100 per barrel before Trump's address, rose to over $109 per barrel at 1630 IST.

Both benchmark OIS rates rose as traders expect the Monetary Policy Committee to focus more on containing inflation and to signal a rate hike soon. Some traders expect the rate-setting panel to raise repo rates on Wednesday, while others expect the first rate hike only in the June meeting, dealers said. If the rupee had continued to depreciate, the rate hike would have been in April. However, since the rupee has recovered due to the central bank's measures, some traders have delayed their expectations of a rate hike next week and aggressively received short-term swap rates earlier in the day.

"I think in this (April) meeting, RBI will remain calculated and change its stance to hawkish," a dealer at a primary dealership said. "It (RBI) will prepare the market for a rate hike scenario in this meeting." 

Both domestic and foreign players paid fixed rates as they expect swap rates to rise further amid the escalation of war in West Asia, dealers said. Some traders placed short bets on the 6.01%, 2030 and 6.36%, 2031 gilts and received the five-year swap rate as they expected the five-year gilt yield to rise, dealers said. Traders also unwound their earlier received positions, booking profits on positions they had entered near 6.20%-6.30%, dealers said. Traders refrained from building aggressive positions ahead of an extended weekend due to the holiday on Friday, dealers said.  

"There is a lot of paying from the foreign players. Foreign banks are paying heavily," a dealer at a private-sector bank said.    

OUTLOOK

Financial markets are closed on Friday due to Good Friday. On Monday, swaps will track Brent crude oil price and movement in US Treasury yields, dealers said. Traders expect swap rates to open steady if there is no escalation in the ongoing war in West Asia, they said. 

Traders await clarity on negotiations between the US and Iran and the possibility of opening the Strait of Hormuz, the vital oil shipping route, even as the war in West Asia remains intense. The movement in government bond yields may also provide direction after the 10-year benchmark gilt yield ended at 7.1329%, the highest closing level since May 8, 2024.

If offshore traders continue paying fixed rates, the five-year OIS rate is on track to test 7.00%, its highest level since October 2022, dealers said. If crude oil drops to near $80 per barrel due to an end to the war in West Asia, the five-year swap could ease to as low as 6.25% as a fall triggers stop-losses on paid fixed-rate positions. Some traders expect rates to remain above pre-war levels even if oil prices fall, dealers said. The one-year swap rate is seen at 6.00-6.45% and the five-year at 6.45-7.00% Monday.

End

US$1 = INR 93.10

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Edited by Saji George Titus

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