More Stories

Informist, Tuesday, May 19, 2026

 

By Aaryan Khanna

 

NEW DELHI – Most overnight indexed swap rates fell as traders considered the levels attractive to receive fixed rates, with Monday's closing levels the highest in over a month, dealers said. The five-year OIS rate erased its fall as crude oil prices and US Treasury yields rose near the close of trade, they said.

 

The one-year swap rate ended at 6.27% Tuesday from 6.31% the previous day. The five-year OIS rate closed at 6.85%, unchanged from Monday. On Monday, both contracts and several others, including the nine-month and two-year rates, had ended at their highest closing levels since Apr. 2. The total notional trading volume reported on Clearing Corp. of India Ltd.'s derivatives trading platform rose to INR 639.15 billion Tuesday from INR 482.25 billion the previous session.

 

During the day, the five-year rate had fallen to 6.80% as Brent crude for July delivery fell to $109 a barrel, down from over $110 at the end of Indian market hours Monday. US President Donald Trump Monday said that he will hold off on further strikes on Iran on the advice of regional allies. However, Brent futures recovered the crucial level and neared $111 a barrel by 1700 IST Tuesday, pulling up the five-year OIS rate, dealers said.

 

The 10-year US Treasury yield remained near its highest in a year, above 4.60%, putting pressure on India's swap rates. However, offshore traders were not paying fixed rates aggressively for most of the day after the jump in OIS rates Monday, dealers said. The one- and five-year swap rates had jumped by 14 basis points each in the previous session, already pricing in the impact of crude and US yields at these levels, they said. 

 

"There was no sizeable flow to pay (fixed rates), unlike yesterday (Monday) when the offshore contingent was paying (fixed rates) very heavily," a dealer at a primary dealership said. "Crude and the war are in stasis right now, so there wasn't much to do on swaps directionally."

 

Other swap rates reacted less to the intraday movement in oil and US yields, with a greater focus on domestic factors, such as several repo rate hikes. Indian Oil Corp. Ltd.'s decision to hike retail prices of petrol and diesel for the second time since Friday made no difference to rate hike expectations, dealers said. Traders expect pump prices to be raised by INR 5-INR 20 in total, with nearly INR 4 already done and further hikes expected in the next week or so, they said. Market participants expect CPI inflation to average 5.0% in 2026-27 (Apr-Mar), above the Reserve Bank of India's April forecast of 4.6%.

 

The one-year OIS rate already factors in the RBI's Monetary Policy Committee raising the repo rate by around 125 basis points from the current 5.25%, dealers said. Near-term swap rates had also priced in a high chance of a 25-basis-point repo rate increase in both June and August monetary policies, which some sections said was more aggressive than the rate-setting panel would actually.

 

"OIS has risen just because of the positioning and uncertainty that comes at the beginning of a rate hike cycle, especially one pushed by an external shock like crude," a dealer at another primary dealership said. "The pace of rise suggests that the market has reasonable confidence in terms of pricing reasonable rate hikes and so the upward pressure is quite modest."

 

Some mutual funds continued to receive fixed rates while investing in floating rate corporate bonds to maximise returns, dealers said. M&M Financial Services Ltd. raised INR 30 billion through floating rate bonds on Monday, with more such instruments in the pipeline over the next two weeks. The planned issuances in Apr-May almost match the amount raised by corporates through floating-rate bonds for the entirety of FY26, according to a calculation by Informist. This reflected changing investor preferences as fears of rate hikes crystallised, dealers said.

 

OUTLOOK

On Wednesday, swap rates are seen opening steady after the recent volatility. Though most traders do not expect the US to attack Iran despite threats from President Donald Trump, the lack of a peace deal and a fragile ceasefire will continue to keep the market on edge, dealers said. OIS rates will be sensitive to further developments in the war and their impact on crude oil prices, they said. 

 

For India, the continued blockade of the Strait of Hormuz and Brent futures above $100 a barrel made the case for the MPC to hike repo rates as spillovers would begin to get reflected in retail inflation, dealers said. With two price hikes in petrol and diesel since Friday and more expected, CPI inflation could climb towards the top end of the RBI's 2-6% tolerance band later in FY27, they said. Swap rates are currently pricing in nearly 125 bps of repo rate increases over the next 12 months. 

 

Traders will also track overnight rates with goods and services tax payments of around INR 2 trillion scheduled this week. The RBI will conduct a five-day, INR 1.50 trillion variable rate repo auction Wednesday. This will help keep the overnight Mumbai Interbank Outright Rate – the floating leg of the OIS contract – within the 5.20-5.30?nd until Monday, dealers said.

 

Traders also await the transfer of the RBI's surplus for FY26 to the Centre, likely to be announced Friday. Traders expect a transfer of INR 2.7 trillion to INR 3.5 trillion, with some expecting a cut in the RBI's 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. A disappointing transfer is likely to cause a sharp fall in gilt prices, prompting traders to hedge their portfolios by paying swap rates, dealers said.

 

The movement in US Treasury yields, the rupee, and overnight money market rates will also affect swaps. Wednesday, the one-year swap rate is seen at 6.15-6.45% and the five-year at 6.60-7.00%.

 

	At 1700 IST	MONDAY
1-year OIS	6.27%	6.31%
2-year OIS	6.52%	6.55%
5-year OIS	6.85%	6.85%
2-year MIFOR	7.22%	7.21%
5-year MIFOR	7.52%	7.51%

 

End

 

US$1 = INR 96.53

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.

 

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd. by NSE Data & Analytics Ltd., a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt. Ltd.

 

Informist Media Tel +91 (11) 4220-1000

Send comments to feedback@informistmedia.com

 

© Informist Media Pvt. Ltd. 2026. All rights reserved.