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Informist, Thursday, Apr. 16, 2026

By Cassandra Carvalho and Aaryan Khanna

MUMBAI – Overnight indexed swap rates ended higher Thursday as offshore traders booked profits on their received bets and domestic traders initiated bond swap trades, dealers said. A slight rise in crude oil prices also pushed up swaps, dealers said. Geopolitically, there was no major change in negotiations between the US and Iran, which made current levels lucrative to book profits and exit positions, they said.

The one-year swap rate ended at 5.80%, up from 5.78% Wednesday. The five-year OIS rate ended at 6.37%, up from 6.33% Wednesday. The total notional trading volume of deals reported on Clearing Corp. of India Ltd.'s derivatives trading platform fell to INR 446.40 billion, from INR 704.75 billion Wednesday. 

"The biddishness (paying) started from offshore, I think it's some real money guys," a dealer at a private sector bank said. "But domestic guys are putting bond swaps, and there's steepeners also being put." 

Brent crude oil futures for delivery in June traded at $95.82 per barrel at 1700 IST, down from $96.10 per barrel at the same time Wednesday, but up from $94.94 per barrel at 0900 IST. As traders pared their bets of a rate hike by the Reserve Bank of India's Monetary Policy Committee this calendar year, they received swap rates maturing in a year or lesser, while paying fixed rates in the five-year swap, dealers said. Some traders also bought gilts maturing in five- and 10-years while paying fixed rates in the five-year swap, dealers said. Offshore traders took the opportunity to book profits on their received bets since the geopolitical scenario was largely stable.

"We've seen like 8-10 basis points of a steepener in three to four days," a market participant said. "There's interest to pay five-year because there's no view that it will fall below 6.22-6.25%."

While swaps are overpricing in rate hikes, traders do not expect Brent crude oil prices to sustain a fall below $90 per barrel in the near term, and fears of inflation rising lingered, dealers said. Ample systemic liquidity and an overnight Mumbai Interbank Outright Rate below repo made short-term swaps attractive to receive, they said, while paying longer-term swaps. The net liquidity absorbed by the Reserve Bank of India--a proxy for liquidity surplus--was INR 5.21 trillion Wednesday, slightly higher than INR 5.13 trillion Tuesday. The overnight MIBOR was 5.13% Thursday, below the repo rate of 5.25%. 

OUTLOOK

OIS rates are expected to trade in a narrow band Friday due to lack of significant cues on domestic interest rates, dealers said. The movement in Brent crude prices and US Treasury yields overnight may lend direction. Traders may not react to a small move in the US yields and oil prices as they await fresh developments in the West Asia conflict. US President Donald Trump said the war with Iran would soon be over, with reports indicating both sides were close to extending the ceasefire that ends Apr. 22. 

Traders are also looking ahead to the second round of peace talks between the US and Iran, which are expected but not confirmed. The extension of the closure of the Strait of Hormuz and the oil, gas, and other commodities stuck in the crucial waterway will help traders bet on domestic monetary policy, dealers said.

The one-year swap rate is already pricing in three repo rate hikes of 25 basis points each to 6.00% by April 2027. Some traders are of the view that the RBI's Monetary Policy Committee will not hike the repo rate so much unless the West Asia conflict extends and may receive fixed rates, dealers said. Even after the RBI conducts the seven-day variable rate reverse repo operation Friday for INR 2 trillion, liquidity is still seen ample, and overnight rates are likely to be below this month, dealers said.

On Friday, the one-year swap rate is seen at 5.70-6.00% and the five-year swap at 6.22-6.50%.

End

US$1 = INR 93.1950

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

Edited by Akul Nishant Akhoury

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