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Informist, Monday, May 18, 2026

 

--India's 1-year OIS ends at 6.31%, highest since Apr 2 

--India's 5-year OIS ends at 6.85%, highest since Apr 2 

--India's 5-year OIS jumps 14 bps Mon over prev, biggest rise since Mar 30 

 

By Cassandra Carvalho

 

MUMBAI – Overnight indexed swap rates climbed Monday, with the one-month OIS rate nearly pricing in a repo rate hike of 25 basis points within the next month as the yield on the 10-year US Treasury note surged to its highest in over a year and near-month Brent crude oil futures rose past $110 per barrel, dealers said. Offshore traders paid fixed rate contracts tracking the rise in global bond yields as the rupee fell to a new low for the sixth day running.

 

The one-year swap rate ended at 6.31% Monday, while the five-year OIS rate ended at 6.85%, both at the highest close since Apr. 2. During the day, the five-year rate touched 6.90%, the highest since Oct. 9, 2023. The swap rose nearly 14 bps Monday, the biggest single-day rise since Mar. 30. The one-year swap rate also rose 14 bps. The total notional trading volume reported on Clearing Corp. of India Ltd.'s derivatives trading platform was INR 482.25 billion at 1700 IST, much lower than INR 891.35 billion Friday. 

 

"There is no chance of a (repo rate) hike in June," a dealer at a private-sector bank said. "But the thing is altogether your US yields, USD/INR (rupee depreciation), Brent, everything is moving upwards and the fiscal (situation) is shaky cause it's bearing the brunt of the price rise, and there was some (offshore) flow all piling on to (pushing up) your bond yields and swaps." The one-month swap rate is pricing in 17 basis points of a hike in the repo rate by the time of its maturity on Jun. 19, the dealer said. The one-year OIS rate is pricing in roughly 145 bps of rate hikes within the next 12 months.

 

The yield on the 10-year benchmark US Treasury note was 4.61% at 1700 IST, up from 4.54% at the same time Friday. Nearing the end of Indian market hours, US yields and Brent crude oil futures eased off the day's highs after Iranian state news agency Tasnim reported that the US had agreed to a waiver on Iran's oil sanctions during the negotiation period.

 

Brent crude oil futures for delivery in July were at $110.60 per barrel at 1700 IST, off the day's high of $111.50 but still up from $108.21 at 1700 IST Friday. Domestic traders, however, do not expect the Reserve Bank of India's Monetary Policy Committee to raise the repo rate as early as June, with most expecting a hike in August or October. Some traders do not expect a rate hike in 2026. The RBI is unlikely to be the first central bank among peer nations in the region to raise the key policy rate, dealers said.

 

Some domestic traders, especially mutual funds, received fixed rate contracts because of the disparity between realistic rate expectations and what swaps were pricing in, they said. The rise in US yields primarily drove up swaps Monday, some dealers said. 

 

OUTLOOK

Tuesday, swaps are seen giving up some of the rise seen Monday as global yields eased after Indian market hours on a report that the US had accepted a waiver on Iranian oil sanctions during negotiations. Traders also do not expect the US to attack Iran, despite threats from President Donald Trump, they said.

 

Traders will also track the RBI's action on liquidity, with outflows of around INR 2 trillion expected to drain the surplus this week for goods and services tax payments. Traders also await the transfer of the RBI's surplus for the financial year 2025-26 (Apr-Mar) to the Centre. Informist reported Monday that the RBI's central board will meet Thursday to approve the transfer of the surplus. Traders expect a transfer of INR 2.7 trillion to INR 3.5 trillion, with some expecting a cut in the contingency risk buffer to 6.5%. Without a higher-than-budgeted transfer of surplus from the RBI, the government is looking at a gaping hole of nearly INR 5 trillion in its finances, an analysis by Informist showed.

 

After state-owned oil marketing companies raised 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 FY27, dealers said. 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 6.20-6.50% and the five-year at 6.60-7.00%.

 

	At 1700 IST	FRIDAY
1-year OIS	6.31%	6.17%
2-year OIS	6.55%	6.40%
5-year OIS	6.85%	6.72%
2-year MIFOR	7.21%	7.00%
5-year MIFOR	7.51%	7.34%

 

End

 

US$1 = INR 96.3450

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

 

Edited by Rajeev Pai

 

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