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Informist, Friday, May 15, 2026

 

By Cassandra Carvalho

 

MUMBAI – Overnight indexed swap rates ended off the day's highs Friday after Informist reported that market participants have written to the Reserve Bank of India and the finance ministry to lower the withholding tax rate on government bonds, dealers said. Citing a senior government official, the report said the proposals include lowering the withholding tax from the current 20% to 5% to attract foreign investment.

 

The one-year swap rate ended at 6.17% Friday, down from the day's high of 6.20%, but up from 6.09% Thursday. The five-year swap rate ended at 6.72%, up from 6.61% Thursday, but off the day's high of 6.76%. The total notional trading volume reported on Clearing Corp. of India Ltd.'s derivatives trading platform was INR 891.35 billion at 1700 IST, slightly lower than INR 924.45 billion Thursday. 

 

"That news of withholding tax had led to receiving in the OIS market, we were at a high of 74-75 (6.74-6.75% on the five-year OIS) and then we came down to 68-69 (6.68-6.69%). But now we're at 6.70% again because people had received too much, especially ahead of the weekend," a dealer at a private sector bank said. 

 

Both the one-year and five-year both hit their highest since Apr. 7 and Apr. 6, respectively, earlier in the session after the yield on the 10-year US Treasury note hit its highest in a year, on fears of inflation rising due to the war in West Asia and lack of any positive outcome on US-Iran peace talks from the meeting between US President Donald Trump and Chinese President Xi Jinping. Offshore traders were paying fixed rates, and swap rates rose further during the day as Brent crude oil for delivery in June rose to $109 per barrel intraday, from $107.80 at 0900 IST. 

 

"Not a single one of the flows we've seen today has been on the receive, they've all been on the pay," a dealer at a foreign bank said. "And then after the report of withholding tax, some saw it as positive, but others saw it as negative because there was a part that the government may not cut tax, so banks were taking different views, but OIS came off quite a bit."

 

Mutual funds have been receiving fixed rates in swaps this week while buying floating rate bonds issued by non-banking financial companies, dealers said, which has capped a rise in swaps even as rates rose tracking the rise in crude. 

 

OUTLOOK

Swaps are not traded on Saturdays. Monday, offshore players are likely to drive the trajectory of swap rates depending on developments in US-Iran peace talks and crude oil prices, dealers said. Traders will also track the RBI's action on liquidity, with outflows of around INR 2 trillion expected to drain the surplus next week for goods and services tax payments. Any announcement of a variable rate repo operation may lead to an easing of short-term swap rates. Traders also expect the RBI board to meet next week and announce the transfer of surplus to the Centre for 2025-26 (Apr-Mar). Traders expect a surplus transfer of INR 2.7 trillion to INR 3.5 trillion, with some expecting a cut in the contingency risk buffer to 6.5%. 

 

After state-owned oil marketing companies hiked retail petrol and diesel prices by INR 3 per litre Friday, traders expect more such hikes gradually. Due to a rise in pump prices, 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, which some dealers feel are overpriced and will receive fixed rate contracts, they said. 

 

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 6.05-6.30% and the five-year swap at 6.65-6.82%.

 

	At 1700 IST	THURSDAY
1-year OIS	6.17%	6.09%
2-year OIS	6.40%	6.29%
5-year OIS	6.72%	6.61%
2-year MIFOR	7.00%	6.90%
5-year MIFOR	7.34%	7.24%

 

End

 

US$1 = INR 95.9650 

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

 

Edited by Saji George Titus

 

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

 

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