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Informist, Thursday, May 7, 2026

By Cassandra Carvalho

MUMBAI – Overnight indexed swap rates ended off the day's highs Thursday after Brent crude for delivery in July tumbled below $100 intraday, dealers said. Some offshore traders paid fixed rates in swaps and this pushed rates higher. The one-year swap rate eased to 5.87% Thursday from 5.90% Wednesday. The five-year swap rate ended at 6.51%, marginally up from 6.50% Wednesday. Both the contracts ended off the day's high of 5.94% and 6.56% respectively.

Trade was relatively subdued compared to Wednesday--which saw the biggest one-day fall for the one-year and five-year swap since Apr. 8--even as volumes were healthy due to offshore activity. 

The total notional trading volume of deals reported on Clearing Corp. of India Ltd.'s derivatives trading platform was INR 830.90 billion, slightly lower than INR 957.95 billion Wednesday. Brent crude for delivery in July was $97.93 per barrel at 1700 IST, down from $102.13 per barrel at 0900 IST and $98.10 per barrel at the same time Wednesday.

Oil prices fell during Indian market hours after news agency Al-Arabiya reported the US and Iran had reached an agreement to ease the blockade and facilitate the reopening of the Strait of Hormuz. Reuters reported the US and Iran are edging towards a limited, temporary agreement to halt their war, with a draft framework that would stop the fighting but leave the most contentious issues unresolved.

"Crude is all we're tracking today (Thursday)," a dealer at a state-owned bank said. "All asset classes are looking at that only. But there's not too much of a change in (US-Iran) developments (even as oil prices fell) so you're not seeing that much reaction, we're hovering around 6.50% (on the five-year swap) only." The 6.50% level on the five-year swap is seen as a key level at which traders either initiate fresh paid or received bets, they said. 

Offshore traders paid swap rates, especially for two-year and five-year swaps, and these rates tracked a rise in the Mumbai Interbank Forward Outright Rate, dealers said. "We saw a lot of selling in USD/INR and forwards from offshore guys today," a dealer at a foreign bank said. 

OUTLOOK

As has been the case since the war in West Asia began, swaps will track crude oil prices and developments on US-Iran peace talks Friday. Swaps will also track the movement in bond yields after the result of the INR-340-billion gilt auction. The government will sell a new 10-year 2036 bond, the coupon on which is seen at around 6.90%, dealers said. 

Traders have opposing views on liquidity, with some expecting liquidity to improve in the next month or so after the Reserve Bank of India announces its transfer of surplus to the Centre--which is expected by end of May, dealers said. Most traders expect liquidity to shrink going ahead, as has been the trend since the new financial year began April, they said. Some traders paid fixed rates Thursday on bets that the liquidity surplus will decrease by end of May and thereby push up the Overnight Mumbai Interbank Outright Rate. 

"Now CIC (currency in circulation) is coming off, and we're seeing FX intervention so I don't think call (money rate) will be at 4.90% like we saw in April," a dealer at a mutual fund said. 

Traders also expect the Centre will hike petrol and diesel prices to support oil marketing companies, which are losing money on retail sales after crude prices jumped because of the war in West Asia. RBI's Monetary Policy Committee external member Ram Singh Tuesday said the government should hike retail fuel prices. If pump prices go up, CPI inflation could climb towards 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 and are largely pricing in a hike in retail energy prices. Dealers are just unsure of when such a price hike would happen and some expect it any time this month. 

The movement in US Treasury yields, the rupee, and overnight money market rates will also affect swaps. On Friday, the one-year swap rate is seen at 5.75-6.15% and the five-year swap at 6.35-6.73%.

End

US$1 = INR 94.25

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

Edited by Pankaj Aher

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