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Informist, Friday, Apr. 17, 2026

By Cassandra Carvalho

MUMBAI – Most overnight indexed swap rates ended steady Friday, giving up early gains as Brent crude oil futures for delivery in June fell to $96 per barrel intraday, from $98.33 per barrel at 0900 IST, dealers said. Consequently, the yield on the 10-year benchmark US Treasury note fell to 4.30% at the end of Indian market hours, from 4.33% at 0900 IST. Swaps had risen earlier in the day as crude prices and US yields had risen overnight, and offshore traders paid fixed rates, dealers said. 

The one-year swap rate ended at 5.81% from 5.80% Thursday. The five-year OIS rate ended at 6.39%, up from 6.37% Thursday. The total notional trading volume of deals reported on Clearing Corp. of India Ltd.'s derivatives trading platform rose to INR 616.25 billion from INR 446.40 billion Thursday. 

"OIS has retraced from highs because oil prices have fallen, but crude is remaining above $95 (per barrel)," a dealer at a state-owned bank said. "We're seeing a bear steepener (of the OIS rate curve), it's good to receive the two-year (OIS) and pay the five-year (OIS)." 

Traders are now raising their expectations of the upper ceiling for swap rates in the near term due to sticky crude prices, dealers said. Offshore traders have paid swap rates this week, and domestic traders see scope for the five-year OIS rate to rise up to 6.60% in the medium term, they said. In the near term, the 6.50% level will be a key level at which traders will jump in to receive fixed rates, they said.   

Traders continued to bet that the OIS rate curve will steepen, with traders receiving the rates maturing in up to two years while paying longer-term rates, dealers said. Traders also expect the spread between bond yields and swaps to widen, and bought the five-year 6.36%, 2031 gilt at auction Friday while paying the five-year swap. The one-year and five-year OIS rates also rose after hitting their 50-day moving averages of 5.80% and 6.32% respectively, dealers said. 

"It seems like that paid flow is out for today (Friday), it began from ND-OIS (non-deliverable OIS) only," a dealer at a private sector bank said. "But in general yields will move higher only. Whoever was hungry (to receive rates) has got their fill, and liquidity is giving comfort so people are hiding (receiving) in short term."

The net liquidity absorbed by the Reserve Bank of India, a proxy for surplus liquidity in the banking system, was INR 4.09 trillion Thursday, down from INR 5.21 trillion Wednesday. The overnight Mumbai Interbank Outright Rate was unchanged from Thursday at 5.13%, inspite of the RBI conducting a variable rate reverse repo auction of INR 2.00 trillion Friday. 

OUTLOOK

Swaps are not traded Saturdays. On Monday, traders will track geopolitical developments on peace talks between the US and Iran; and Israel and Lebanon and their impact on Brent crude prices and US Treasury yields. Post Indian market hours, crude oil prices slumped over 10% after Iran declared the Strait of Hormuz open as long as the Israel-Lebanon ceasefire is in place. 

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 as outflows of around INR 1.80 trillion begin next week for goods and services tax payments, liquidity is still seen ample, and overnight rates are likely to be below repo this month, dealers said.

On Monday, the one-year swap rate is seen at 5.50-6.00% and the five-year swap at 6.15-6.50%.

End

US$1 = INR 92.92

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

Edited by Vandana Hingorani

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