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Informist, Friday, Apr. 10, 2026

By Cassandra Carvalho and Aaryan Khanna

MUMBAI – Overnight indexed swap rates ended off the day's high Monday as mutual funds received fixed-rate contracts at levels considered attractive, dealers said. CPI inflation data for March, released at 1600 IST, did little to change traders' expectations for the trajectory of interest rates in India. However, a rise in oil prices and US Treasury yields over the weekend pushed up swap rates as those who had received fixed rates Friday unwound their positions, dealers said. 

The one-year swap rate ended at 5.84%, from 5.83% Friday and off the day's high of 5.90%. The five-year OIS rate ended at 6.36%, also off the day's high of 6.41%, but up from 6.31% Friday. The total notional trading volume of deals reported on Clearing Corp. of India Ltd.'s derivatives trading platform fell sharply to INR 319.90 billion Monday, from INR 848.00 billion in the previous session.

"Domestic traders are unwinding whatever (received) positions they had taken on Friday (tracking the rise in crude oil prices)," a trader at a primary dealership said. "But there's heavy receiving from mutual funds today (Monday)." 

Domestic banks were looking to hedge their bond holdings, both of statutory liquidity ratio securities and corporate bonds. Mutual funds were flush were cash and were looking to both buy bonds and receive OIS rates, dealers said. With the view that surplus liquidity would remain high and money market rates low despite the Reserve Bank of India's surprise seven-day variable rate reverse repo auction on Friday, traders were looking to receive rates maturing up to one year after they rose early in the day.

OIS rates opened higher, tracking a rise in Brent crude oil price to more than $100 per barrel after the US and Iran failed to reach a deal in Islamabad over the weekend, dealers said. Brent Crude futures for delivery in June were at $101.91 per barrel at 1700 IST, against $96.00 per barrel at the same time Friday. Tracking the geopolitical developments and after US CPI inflation print for March was at its highest in 22 months, the 10-year US Treasury yield rose to 4.34% at the end of gilt market hours from 4.30% at the same time Friday.

Traders feared the RBI's Monetary Policy Committee may have to hike rates later in 2026-27 (Apr-Mar) should Brent crude prices average more than $85 a barrel assumed by the central bank at the policy meeting last week. The five-year OIS rate was initially under pressure but non-deliverable OIS, the swap rate traded offshore, was below the onshore equivalent through the day and capped rates, dealers said.

"The one-year swap rate is showing three rate hikes. You can't push it more than that even unless the RBI is forced to hike by external pressures," a dealer at a foreign bank said. "So, fundamentally the pressure has remained low in OIS since policy (MPC outcome on Wednesday)."

The rate hike view also moderated after the release of India's CPI inflation during market hours. Headline CPI inflation was 3.4% in March, in line with an Informist poll. Core CPI inflation moderated to 3.3% in March from 3.4% the previous month, according to a calculation by Informist.

The impact of the war on retail inflation was lower than some market participants had bet on. Traders had expected a reading around 3.5%. Some traders said the impact of the war would be better captured in the March wholesale price inflation later this week.

OUTLOOK

Swap rates will open Wednesday, 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, with the former planning to embargo ships from Iranian ports starting 1930 IST Monday. Significant movement in US Treasury yields will also lend cues to swap rates, dealers said.

Financial markets will be shut on Tuesday on account of Ambedkar Jayanti.

On Wednesday, 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 93.38

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

Edited by Avishek Dutta

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