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Informist, Monday, Apr. 20, 2026

By Cassandra Carvalho

MUMBAI – Overnight indexed swap rates ended a tad lower Monday, as offshore traders received fixed rate contracts, with traders betting on the US and Iran negotiating a peace deal within the next few days, dealers said. An intraday fall in crude oil prices also contributed to the fall in swaps, they said. 

The one-year swap rate ended at 5.78%, down from 5.81% Friday. The five-year OIS rate ended at 6.35%, lower than 6.39% Friday. The total notional trading volume of deals reported on Clearing Corp. of India Ltd.'s derivatives trading platform was INR 335.55 billion, a little more than half the INR 616.25 billion Friday. 

"Market has calmed down...People are mostly expecting that this sticky (US-Iran peace talks) peace issue will be resolved in two days. Until the talks, there's just noise, market is ignoring the noise," a dealer at a private sector bank said. "(Even if crude remains above pre-war levels after a deal), market is already pricing an average crude price of $80-$85 per barrel, we're already pricing in rate hikes." 

As per Al Jazeera, Iranian officials said they have no plans for a fresh round of talks with the US after the latter seized an Iran-flagged cargo ship in the Strait of Hormuz. The seizure was shortly after US President Donald Trump said that a US delegation would visit Islamabad on Monday for possible talks with Iran. 

The yield on the benchmark 10-year US Treasury note was 4.27% at 1700 IST, down from 4.30% at the same time Friday, closely tracking the movement of oil prices. Brent crude oil futures for delivery in June were at $95.13 per barrel at 1700 IST, after easing to $94.03 per barrel intraday from $95.17 per barrel at 0900 IST, and $96.25 per barrel at 1700 IST Friday. Market sentiment has improved slightly after the US and Iran agreed to a ceasefire early April, which has largely held so far. However, traders are still jittery about whether oil prices suddenly spike above $100 per barrel, whether the Strait of Hormuz remains shut, and whether US-Iran and Israel-Lebanon hostilities continue, dealers said. 

On the domestic front, ample liquidity pulled down swap rates maturing in a year or less, as the overnight Mumbai Interbank Outright Rate was set below the repo rate at 5.13% for the third consecutive session. The overnight MIBOR has averaged 5.13% so far this April. According to the latest figures, the net liquidity absorbed by the RBI was INR 4.28 trillion Sunday, up from INR 4.25 trillion Saturday, but down from INR 4.42 trillion Friday. The liquidity surplus has averaged INR 4.35 trillion so far this month and is likely to be around the same till the end of March, dealers said. This led to dealers placing bets on steepening of the swap rate curve, while some dealers also felt that short-term swaps are overpricing in rate hikes.

The one-year OIS rate is still pricing three to four rate hikes of 25 basis points each in the next 12 months, compared to bets of four to five hikes at end of March. Even if a US-Iran peace deal is cemented, Brent crude oil prices will take months to recover to pre-war levels, but swaps have largely priced it in, dealers said. However, the five-year OIS rate is unlikely to fall below 6.25% as expectations of higher inflation linger. Several traders expect the Centre to transmit the rise in crude prices to consumers by hiking energy prices once state assembly elections scheduled for this month end. 

"I highly doubt that five-year OIS will fall below 6.25-6.30%, 6.30% itself looks difficult. One-year OIS is still pricing three-four hikes, but until there's a sustained de-escalation, it's best to just stay on the sidelines, because suddenly if the war re-ignites then one-year (OIS) will spike and all steepeners will be put out."

OUTLOOK

On Tuesday, traders will track developments on peace talks between the US and Iran; and Israel and Lebanon and their impact on Brent crude prices and US Treasury yields. US President Donald Trump said he would not open the Strait of Hormuz unless a deal with Iran was signed, as per media reports.  

On the interest rate front, traders await minutes of the Reserve Bank of India's Monetary Policy Committee's April meeting, due Wednesday. Later in the month, traders also await the US Federal Open Market Committee's interest rate decision, commentary by US Federal Reserve Chair Jerome Powell and clarity on the next Fed chair once Powell's term ends in May. Fed fund futures are pricing in status quo in the federal funds rate next week, as inflation in the world's largest economy remains sticky. 

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 MPC 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 began Monday for goods and services tax payments, liquidity is still seen ample, and overnight rates are likely to be below the repo rate this month, dealers said.

On Tuesday, 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 93.1275

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

Edited by Avishek Dutta

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