More Stories

Informist, Tuesday, May 5, 2026

 

By Janwee Prajapati

 

MUMBAI – Overnight indexed swap rates erased the sharp intraday gains by the end of trade following a report that said the Reserve Bank of India was mulling fresh measures to support the rupee, dealers said. Swap rates were up for most of the day as the escalation in the West Asia conflict soured market sentiment and crude oil prices and US Treasury yields rose overnight, they said.

 

Bloomberg reported Tuesday that the RBI was considering a plan for public-sector banks to issue foreign currency bonds in an effort to drive capital inflows. The banks may issue the bonds for a five-year tenure, though the plan is not finalised yet, the report said, quoting sources in the know. The expected easing in the rupee weakens the fear of several market participants that the central bank may be forced to hike rates to stop the domestic unit from tumbling down, dealers said. The rupee fell to a record low of 95.4350 a dollar Tuesday and closed at a record closing low of 95.2800 a dollar.

 

The one-year swap rate ended at 6.06%, unchanged from Monday, after retreating from a high of 6.10% during the day. The five-year swap rate ended at 6.67%, the same as Monday, after hitting an intraday high of 6.73%. Dealers said 6.70-6.73% is a key technical level for five-year swap rates, while 6.08-6.10% is the key level for one-year OIS rate. If there is any further escalation in the West Asia war, the five-year and one-year swap rates could rise to 7.83-7.85% and 6.20-6.25%, respectively, dealers said. The total notional trading volume of deals reported on Clearing Corp. of India Ltd.'s derivatives trading platform was INR 560.30 billion, up slightly from INR 537.85 billion Monday.    

 

"...Whether current levels are good for receiving or not depends on the view you hold," a dealer at a primary dealership said. "Right now, given the escalation in West Asia tensions, it all depends on war and the reopening of the Strait of Hormuz."     

 

On the war front, the US military said it destroyed Iranian small boats and intercepted multiple cruise missiles and drones, according to media reports. Iran allegedly launched these attacks on ships being transported through the Strait of Hormuz Monday under US President Donald Trump's "Project Freedom" initiative. The United Arab Emirates and South Korea also reported strikes on ships in the crucial channel on Monday. Following the escalation, Brent crude oil price for July delivery rose to near $113 per barrel as of 1700 IST, up from $111 per barrel at the end of Indian trading hours Monday. Traders expect the five-year OIS rate to ease to 6.50-6.52% if crude prices fall to near $95-$100 per barrel, dealers said.

 

Both offshore and domestic participants paid fixed rates in OIS as they expect the rates to rise further, with hedging activity for bonds likely to increase if the US and Iran return to a full military conflict. The 10-year US Treasury yield was at 4.44%, up from 4.42% at 1700 IST Monday. Traders expect the swap rate curve to flatten with a rise in short-term rates, dealers said. 

 

"One-year rates is already pricing in a 50-basis-point rate hike in the second half of the year due to inflation," a dealer at a private sector bank said. "If the crude oil prices remain elevated, the government will not be able to support oil retail prices with subsidies."

 

OUTLOOK

OIS traders will track crude oil prices and developments in the war in West Asia, now in its third month, dealers said. The overnight movement 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. RBI's Monetary Policy Committee external member Ram Singh also said Tuesday that the government should hike retail fuel prices. 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), dealers said. Swap rates have already factored in multiple repo rate hikes in India in 2026-27 (Apr-Mar) and beyond.

 

Traders will also track the liquidity surplus, which has fallen considerably from its high of INR 5.50 trillion in April. The net liquidity absorbed by the RBI – an indication of surplus liquidity in the banking system – was INR 2.57 trillion Monday, data showed. 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	MONDAY
1-year OIS	6.06%	6.05%
2-year OIS	6.28%	6.30%
5-year OIS	6.67%	6.67%
2-year MIFOR	6.85%	6.86%
5-year MIFOR	7.19%	7.20%

 

End

 

US$1 = INR 95.28

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

 

Edited by Tanima Banerjee

 

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

 

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd. by NSE Data & Analytics Ltd., a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt. Ltd.

 

Informist Media Tel +91 (22) 6985-4000

Send comments to feedback@informistmedia.com

 

© Informist Media Pvt. Ltd. 2026. All rights reserved.