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Informist, Monday, May 4, 2026

 

By Janwee Prajapati

 

MUMBAI – Overnight indexed swap rates ended higher Monday, tracking Brent crude oil prices which rose past the crucial level of $110 per barrel on reports of Iran's attacks on a US warship, dealers said. A rise in US Treasury yields also pushed up swap rates. Traders avoided building aggressive positions amid uncertainty on the intensity of the war in West Asia, they said.   

 

The one-year swap rate ended at 6.06%, up from 6.00% on Thursday. The five-year swap rate ended at 6.67%, up from 6.61% Thursday after hitting an intraday high of 6.72%. The total notional trading volume of deals reported on Clearing Corp. of India Ltd.'s derivatives trading platform was INR 460.95 billion, down from INR 656.75 billion Thursday. Money markets were shut Friday for Maharashtra Day and Labour Day.

 

Brent crude oil futures for July delivery were near $112 per barrel at 1700 IST, up from nearly $108 at 0900 IST, but similar to over $113 per barrel at the end of market hours Thursday. Crude oil prices had fallen over the long weekend after US President Donald Trump said the US Navy would guide stranded ships through the Strait of Hormuz, raising hopes of additional crude supply which has been disrupted since the end of February. However, Iran immediately called this a breach of the ceasefire.

 

During Indian market hours, Iranian media reported a claim from Tehran that it had attacked a US warship with two missiles, which led to a rise in the Brent crude futures contract to over $114 per barrel. However, oil prices eased slightly after the US military denied a hit to any ship at 1630 IST. The risk of higher imported inflation led traders to pay fixed rates in the domestic swap market, dealers said.

 

"I think some traders must have hit stop-losses around 6.67-6.68% levels (on five-year swap rate)," a dealer at a primary dealership said. "Because we (swap rates) rose even when gilts had not moved." 

 

US Treasury yields had also fallen over the weekend but rose intraday after the reports, which impacted swap rates. The 10-year US yield was 4.41% at 1700 IST, up from 4.38?rlier in the day, but similar to 4.40% at 1700 IST Thursday. Domestic participants, on the other hand, were reluctant to take any aggressive position as they remained unsure of the direction of rates, dealers said. OIS rates had opened lower due to the positive global factors before rising due to the intraday cues. 

 

"Domestic players are not taking any positions, they are thinking about inflation...the way oil prices are rising government will soon hike the retail oil prices," a dealer at another primary dealership said. "CPI is definitely going to be higher with less monsoon also this year." The India Meteorological Department has forecast the southwest monsoon at 92% of the long-period average, on the borderline of being deficient.

 

These factors were seen as strengthening the case for tighter monetary policy in India. The one-year swap rate already accounts for four to five 25-basis-point repo rate hikes by April, which is why its rise has been limited in the last few sessions, including Monday, dealers said.

 

OUTLOOK

OIS traders will track crude oil prices and developments in the war in West Asia, now in its third month, dealers said. An overnight move in US yields will also lend cues, they said.

On the domestic front, traders are worried that the Centre might hike petrol and diesel prices to support oil marketing companies, which are losing money on retail sales after crude prices jumped because of the West Asia conflict. If pump prices go up, CPI inflation could climb toward the top of the RBI's 2-6% tolerance band later in 2026-27 (Apr-Mar). Swap rates have already factored in multiple repo rate hikes in India in FY27 and beyond.

 

Traders will also track the liquidity surplus, which has fallen considerably from its high of INR 5.50 trillion in April. On Tuesday, the one-year swap rate is seen at 5.90-6.15% and the five-year swap at 6.40-6.75%.

 

	At 1700 IST	THURSDAY
1-year OIS	6.06%	6.00%
2-year OIS	6.30%	6.24%
5-year OIS	6.67%	6.61%
2-year MIFOR	6.86%	6.92%
5-year MIFOR	7.20%	7.23%

 

End

 

US$1 = INR 95.09

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

 

Edited by Avishek Dutta

 

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