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Informist, Friday, Apr. 10, 2026

By Aaryan Khanna

MUMBAI – Overnight indexed swap rates ended lower as the ceasefire between Iran and the US showed signs of holding up, with a sharp fall in gilt yields also pulling down rates, dealers said. Swap rates maturing up to one year had shot up in the middle of the day and trade volumes surged after the Reserve Bank of India announced a variable rate reverse repo auction but ended lower due to a benign outlook on rate hikes in India.

The one-year swap rate ended at 5.83%, down from 5.86%. The five-year OIS rate ended at 6.31%, reversing the entire 8-basis-point rise from the previous day. The total notional trading volume of deals reported on Clearing Corp. of India Ltd.'s derivatives trading platform jumped to INR 848.00 billion from INR 309.40 billion.

Swap rates have tumbled after the ceasefire was announced Wednesday, especially with the Reserve Bank of India's Monetary Policy Committee also unanimously keeping the policy repo rate unchanged at 5.25% and policy stance at 'neutral'. The rate-setting panel noted growth and inflation risks from the West Asia conflict but preferred to adopt a 'wait-or-watch' approach. Market participants got no signal policymakers were in a hurry to tighten conditions and unwound their bets on rate hikes in India.

That got a boost early in the day on report that Israel and Lebanon would also engage in talks for peace after the former launched a ground invasion and has taken over significant territory in southern Lebanon. This boosted hope that the Iran-US ceasefire would also hold as the fighting quiets down on the Lebanese front in the West Asia war. Brent crude futures for June delivery remained in the $96-$97 per barrel band through the day, down from $97.86 per barrel at the end of Indian market hours Thursday.

"As long as crude is not testing $100 (a barrel), hedge funds are in receiving mode," a dealer at a foreign bank said. "There is a lot of risk still priced into swaps and especially five-year has been swinging wildly. But this 6.25-6.45% range should stabilise."

Volumes in short term swap rates shot up in the middle of the day after the surprise seven-day, INR-2-trillion VRRR announcement, a first in four months. After the announcement, the one-year swap rate hit a high of 5.90% and the five-year swap rate rose to 6.40%, while the one-month swap rate jumped 7 bps from Thursday's close to 5.35%. RBI Governor Sanjay Malhotra said after the MPC outcome Wednesday that the central bank would look to provide comfortable liquidity to banks in the backdrop of the geopolitical uncertainty caused by the conflict in West Asia. This was seen as a sign by traders that the RBI would not drain liquidity through auctions in April.

The fears quickly faded as overnight money market rates remained muted, near the lower end of the RBI's Liquidity Adjustment Facility Corridor. The announcement, at 1213 IST, came after the overnight Mumbai Interbank Outright Rate was calculated, dealers said. Moreover, money market rates are expected to remain low through the next week despite the VRRR, which was fully subscribed, seen as a sign of comfort on the liquidity conditions.

The one-year swap rate still reflects around three repo rate hikes of 25-basis-points each in 2026-27 (Apr-Mar). Traders were also keen to receive fixed rates on the view that the MPC would hike only once in the current financial year, or not at all, if CPI inflation remains below 6% on average. The RBI has projected retail inflation to average 4.6% in FY27, with upside risks, though traders do not see it climbing to the upper end of the RBI's 2-6% tolerance band.

"The one-year swap remains a receive, even the six- and three-month tenures are at good levels," a dealer at a primary dealership said. "The problem with these rates is that people have lost a lot of money playing on that fundamental view and a lot of paying can come in anytime that the (inflation) situation worsens."

OUTLOOK

OIS rates are not traded Saturday. Swap rates will open Monday tracking crude oil price movement on developments relating to West Asia, dealers said. There is concern about whether the ceasefire between the US and Iran will hold. Significant movement in US Treasury yields will also lend cues to swap rates, dealers said.

Traders' attention is now on CPI inflation for March, due Monday, as it will provide some clarity on the impact of the rise in crude oil prices. Comments from the RBI's rate-setting panel had suggested the bar for rate hikes was higher than traders had earlier priced in, dealers said. An Informist Poll of 13 economists sees CPI inflation climbing to 3.4% in March from 3.21% the previous month.

The one-year swap rate is seen at 5.70-6.00% and the five-year swap at 6.25-6.50%.

End

US$1 = INR 92.73

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

Edited by Akul Nishant Akhoury

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