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Informist, Monday, May 11, 2026

 

By Janwee Prajapati

 

MUMBAI – Overnight indexed swap rates ended higher Monday, tracking a rise in near-month Brent crude oil futures to $105 per barrel. However, swaps gave up some gains as Brent crude eased intraday, dealers said. Traders paid fixed rates because of the uncertainty about the developments in the West Asia conflict, they said. Traders now await India's CPI inflation data for April, scheduled for release 1600 IST Tuesday.

 

The one-year swap rate rose to 5.97% Monday from 5.90% Friday. The five-year swap rate ended at 6.62%, up from 6.56% Friday. The total notional trading volume of deals reported on Clearing Corp. of India Ltd.'s derivatives trading platform was INR 684.30 billion at 1700 IST, up slightly from INR 624.70 billion Friday. Brent crude for delivery in July was nearly $104 per barrel at 1700 IST, down from over $105 per barrel at 0900 IST but higher than $100.46 per barrel at the same time Friday.

 

The Brent crude price rose nearly $5 a barrel on Monday after the US and Iran failed to agree on a peace proposal drafted by Washington. The Strait of Hormuz remained mostly closed, keeping global energy supplies tight. Hopes for an imminent end to the US-Iran conflict that would reopen oil transit through the strait faded after US President Donald Trump Sunday dismissed Iran's response to the US proposal for peace talks as "unacceptable". The yield on the 10-year US Treasury note was 4.40% at the end of OIS market hours, up from 4.34% the same time Friday, which also pushed up swap rates. 

 

Traders refrained from building aggressive positions as they awaited more concrete statements on a peace deal between the US and Iran, with the ceasefire seen as fragile, dealers said. Some traders who had received fixed rate contracts ahead of the weekend, on hopes of a truce between the warring nations, also trimmed their positions, which pushed swap rates higher, dealers said.

 

"It (5-year OIS) has broken 6.57% level, which was crucial, so people (traders) have taken paying bets," a dealer at a private-sector bank said. "I do not see any reversal given current geopolitical conditions. It will only go higher; 6.72% is the next crucial level, if broken then 6.84-6.85%."

 

On the inflation front, according to an Informist Poll of 13 economists, India's CPI inflation for April is seen at a 15-month high of 3.8% in April, from 3.4% in March. Some traders expect a print closer to 4%. However, if inflation is higher than 4%, traders are likely to price in a hike in the repo rate by the Reserve Bank of India's Monetary Policy Committee at its June meeting, dealers said. Some traders, on the other hand, do not expect any significant rise in rates as traders have already priced in higher inflation as a consequence of the West Asia war, dealers said. At current levels, traders expect two rate hikes of 25 basis points each within the next 12 months, starting from the latter half of the current calendar year, they said.

 

Traders also foresee a sharper increase in wholesale inflation, driven by oil supply disruptions, as the Centre is yet to raise retail energy prices. Many traders expect the Centre to announce price hikes this month. Traders also assessed Prime Minister Narendra Modi's remarks on the energy crisis stemming from the war, dealers said. Some said Modi's comments signalled the possibility of an increase in retail fuel prices, which weighed on market sentiment.

 

"We are expecting the inflation figure to be around 3.90%, entire market is expecting something between 3.80-3.90%," a dealer at a primary dealership said. "If the inflation is higher than expectations, then swap rates will rise 4-5 basis points because market is already pricing in rate hikes."

 

OUTLOOK

As has been the case since the war in West Asia began, swap rates Tuesday will track crude oil prices and developments in the US-Iran peace negotiations, dealers said. Traders will also gauge the CPI inflation data scheduled for release at 1600 IST.

 

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. Most traders expect liquidity to shrink going ahead, as has been the trend since the new financial year began April, dealers said. If inflation is significantly higher than expected, rates will shoot up despite comfortable liquidity, they said.

 

Traders also expect the government to raise petrol and diesel prices to support oil marketing companies, which are losing money on retail sales after crude oil prices shot up because of the war. If pump prices go up, CPI inflation could climb towards the top of the RBI's 2-6% tolerance band later in the financial year 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. They expect it this month. 

 

The movement in US Treasury yields, the rupee, and overnight money market rates will also affect swaps. Tuesday, 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	FRIDAY
1-year OIS	5.97%	5.90%
2-year OIS	6.22%	6.13%
5-year OIS	6.62%	6.56%
2-year MIFOR	6.87%	6.79%
5-year MIFOR	7.25%	7.17%

 

End

 

US$1 = INR 95.31

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

 

Edited by Rajeev Pai

 

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