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Informist, Tuesday, May 12, 2026

 

By Janwee Prajapati

 

MUMBAI – Overnight indexed swap rates ended higher Tuesday, tracking an intraday rise in crude oil prices, dealers said. An overnight rise in US Treasury yields also pushed up swap rates, dealers said. However, swaps gave up some gains briefly after India's CPI inflation data for April came in lower than expected, dealers said.   

 

The one-year swap rate ended at 6.05% Tuesday, up from 5.97% Monday. The five-year swap rate ended at 6.68%, up from 6.62% Monday. The rise in the one-year swap rate was more than that in the five-year swap rate, as traders expect the impact of higher crude oil prices to be more pronounced on near-term rates than on long-term rates, dealers said. Some traders likely paid one-year swap rates and received five-year swap rates, dealers said. 

 

The total notional trading volume reported on Clearing Corp. of India Ltd.'s derivatives trading platform was INR 717.55 billion at 1700 IST, up slightly from INR 684.30 billion Monday. Traders refrained from building aggressive positions as they awaited more concrete statements on a ceasefire agreement between the US and Iran, dealers said.

 

Brent crude for delivery in July was over $107 per barrel at 1700 IST, down from the day's high of over $108 per barrel and higher than $104 per barrel at the same time Monday. On the geopolitical front, US President Donald Trump said the ceasefire with Iran was at its "weakest" and on "massive life support" after he rejected Tehran's response to the ceasefire agreement, according to media reports. At 1700 IST, the benchmark US Treasury yield rose to 4.43% from 4.40% at the end of OIS market trading hours Monday.

 

Meanwhile, India's annual inflation rose to a 13-month high of 3.48% in April, up from 3.40% in March, government data showed. The inflation print was expected to rise to a 15-month high of 3.8% in April, according to an Informist poll. Swap rates were off highs following the lower-than-expected inflation print. However, traders remained cautious amid uncertainty over a ceasefire deal between the US and Iran, as it might lead to higher inflation data in the subsequent months, they said. Moreover, traders expect the government to raise retail fuel prices in the wake of higher crude oil prices, which also weighed on sentiment, dealers said.

 

"There is nothing much to read in the inflation data," a dealer at a private sector bank said. "There was nothing much in April. Prices were kept lower, so not much can be said based on one CPI print."  

 

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 an increase in retail prices of petrol, diesel and cooking gas this month. Traders are still factoring in two rate hikes in the current year, which are reflected in the one-year swap rate, dealers said. However, the five-year swap rate is pricing in a full cycle of four rate hikes, they said.  

 

"There is no change in rate hike expectations," a dealer at another private sector bank said. "There is no impact of this (April CPI inflation data) lower inflation because even the prime minister's comments signalled the possibility of a rise in fuel prices."   

 

OUTLOOK

As has been the case since the war in West Asia began, swap rates will track crude oil prices and developments in the US-Iran peace negotiations, dealers said.

 

Traders have opposing views on liquidity, with some expecting it to improve in the next month or so following the RBI's 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 in April, dealers said. The Reserve Bank of India held a three-day variable rate repo auction Tuesday for INR 500 billion, of which only INR 71.90 billion was subscribed at a cut-off of 5.26%.

 

Traders also expect the government to raise petrol, diesel and cooking gas 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 rise, CPI inflation could climb towards the top end 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. 

 

The movement in US Treasury yields, the rupee, and overnight money market rates will also affect swaps. The 10-year US Treasury yield inched higher post-Indian market hours after US CPI inflation for April rose 3.8% on year, the highest since May 2023. Wednesday, 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	MONDAY
1-year OIS	6.05%	5.97%
2-year OIS	6.28%	6.22%
5-year OIS	6.68%	6.62%
2-year MIFOR	6.93%	6.87%
5-year MIFOR	7.29%	7.25%

 

End

 

US$1 = INR 95.63

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

 

Edited by Saji George Titus

 

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