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Informist, Friday, May 8, 2026

 

By Janwee Prajapati

 

MUMBAI – Overnight indexed swap rates ended higher Friday after Brent crude oil prices rose above the key level of $100 per barrel overnight, dealers said. Some traders also paid fixed rates ahead of the week as they were uncertain about the developments in the West Asia conflict in the next three days, especially with the escalation in the conflict this week, they said. 

 

The one-year swap rate rose to 5.90% Friday from 5.87% Thursday. The five-year swap rate ended at 6.56%, up from 6.51% Thursday. The total notional trading volume of deals reported on Clearing Corp. of India Ltd.'s derivatives trading platform was INR 624.70 billion at 1630 IST, down around 25% from INR 830.90 billion Thursday. Brent crude for delivery in July was over $100 per barrel at 1700 IST, down from $101.28 per barrel at 0900 IST but higher than $97.99 per barrel at the same time Thursday.

 

Crude oil prices rose above the psychologically crucial level after Iran's military said the US forces targeted an Iranian oil tanker and a second vessel near the United Arab Emirates' Fujairah port, with airstrikes in several cities violating the ceasefire, according to media reports. The US said it fired on Iranian targets after Iranian forces launched missiles, drones, and small boats at three US warships in the Strait of Hormuz. 

 

"I expect the 5-year swap rate to remain in a range of 6.45-6.70?sed on geopolitical events," a dealer at a private sector bank said. "Market is hoping for an end to the war because the ceasefire is still maintained despite the escalation...but if crude continues to remain over $100 then (repo) rate hike expectations will take the (five-year swap) rates to 6.70%."

 

Traders refrained from building aggressive positions ahead of the weekend as they awaited more concrete statements on a peace deal between the US and Iran, with the ceasefire seen fragile in light of recent confratations, dealers said. However, some traders said the spread between the five-year benchmark 6.36%, 2031 bond and five-year swap rate was attractive to receive. They were looking to sell the 2031 bond while receiving the five-year swap rate, they said.

 

For short-term swap rates, the Mumbai Interbank Outright Rate – the floating leg of the OIS contract – was not expected to rise above the repo rate in the near-term due to the Reserve Bank of India's liquidity actions, dealers said. The Reserve Bank of India held a four-day variable rate repo auction Thursday to keep the overnight rates in check amid excise duty outflows, despite comfortable surplus liquidity in the banking system. The overnight MIBOR has been set at 5.22-5.23?ter spiking to 5.34% on Apr. 30.

 

"Liquidity is not an issue, I feel VRR was undesirable," a dealer at a primary dealership said. "I think he (RBI) is trying to just maintain enough liquidity in the (banking) system, but the rates now depend largely on (crude) oil prices."

 

OUTLOOK

Money markets are shut Saturday. As has been the case since the war in West Asia began, swap rates on Monday will track crude oil prices and developments on US-Iran peace talks over the weekend, dealers said. 

 

Traders have opposing views on liquidity, with some expecting liquidity to improve in the next month or so after the RBI announces its transfer of surplus to the Centre--which is expected by the 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. 

 

Traders also expect the government 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 FY27 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 expect it this month. 

 

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

 

	At 1700 IST	THURSDAY
1-year OIS	5.90%	5.87%
2-year OIS	6.13%	6.09%
5-year OIS	6.56%	6.51%
2-year MIFOR	6.79%	6.71%
5-year MIFOR	7.17%	7.10%

 

End

 

US$1 = INR 94.48

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

 

Edited by Avishek Dutta

 

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