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Informist, Friday, May 29, 2026

 

By Cassandra Carvalho

 

MUMBAI – Overnight indexed swap rates ended steady Friday, recovering from a fall earlier in the day as traders trimmed exposure to risk ahead of the weekend, and swaps also tracked an intraday rise in gilt yields after the result of the INR 280-billion auction was published, dealers said. The one-year swap ended the week nearly 21 basis points lower while the five-year swap fell 20 bps tracking a fall in crude oil prices. In the same period, near-month Brent crude oil futures have fallen nearly $14 per barrel.

 

The one-year swap rate ended at 6.10%, the same as Wednesday, and off the day's low of 6.07%. Indian financial markets were shut Thursday for Id-ul-Zuha. The five-year OIS rate ended at 6.61%, flat from Wednesday and up from the day's low of 6.58%.

 

"Now they are saying monsoon will be weaker, and the positivity from crude has also been priced in, $90 (per barrel) is seen as the near-term bottom (for Brent crude prices)," a trader at a primary dealership said. "No one will go heavy here before the policy (Monetary Policy Committee meeting) and before the weekend."

 

Swaps had opened lower as Brent crude oil futures for delivery in July fell to $93.85 per barrel at 0900 IST, from $95.85 per barrel at the end of Indian swap market hours Wednesday. Axios reported that the US and Iran ‌have reached a 60-day agreement to extend the ceasefire, but US President Donald Trump was yet to give his final approval.

 

Later in the day, swaps recovered from the fall tracking a rise in gilt yields after the cut-off price on the 7.43%, 2076 gilt at the weekly auction was lower than expectations. The India Meteorological Department Friday indicated that below-normal rainfall is expected over India due to the development of the El Nino weather phenomenon. This, too, pushed up swaps as it raised fears of inflation rising, dealers said.

 

Technical levels on swaps also limited a fall, dealers said. The five-year OIS fell to a day's low of 6.58%, and resisted a further fall as it neared its 50-day moving average of 6.55%, dealers said.

 

"OIS has respected 50 DMA (50-day moving average), it has not been broken since early November," a dealer at a private-sector bank said. "It was tested in Feb, in April, and now today (Friday), but it's holding (not falling below)."

 

The total notional trading volume reported on Clearing Corp. of India Ltd.'s derivatives trading platform fell to INR 413.20 billion from INR 540.35 billion Wednesday.

 

OUTLOOK

Swaps are not traded Saturdays. On Monday, swap rates will track crude oil prices and traders will assess developments over the weekend to take positions ahead of the Reserve Bank of India's Monetary Policy Committee meeting on Jun. 5, dealers said. Most traders are cautious ahead of the policy decision, due to uncertainty on when the rate-setting panel will begin hiking the repo rate due to increased crude oil prices, dealers said.

 

Traders expect the rate-setting panel to opt for a "hawkish hold" on the repo rate next week. However, due to reports of a likely peace deal between the US and Iran, traders are unsure of how restrictive the tone of the committee can get. Traders expect the RBI to cut its GDP growth forecast for the financial year 2026-27 (Apr-Mar) by 20-30 bps while FY27 CPI inflation could be raised to above 5% from 4.6% currently, dealers said. The one-month swap rate is pricing in less than 25 bps of a rate hike in June while the three-month swap rate is pricing in around one rate hike of 25 bps, dealers said. 

 

Dealers hope the central bank will announce measures to curb the rupee's depreciation, weakening the case for a policy repo rate hike. Some dealers expect more dollar-rupee buy-sell swap auctions to be conducted after the RBI held one Tuesday.

 

Movement in the rupee and overnight money market rates will also influence swaps. Monday, the one-year swap rate is seen at 5.90-6.40% and the five-year at 6.50-6.90%.

 

	At 1700 IST	WEDNESDAY
1-year OIS	6.10%	6.10%
2-year OIS	6.29%	6.29%
5-year OIS	6.61%	6.61%
2-year MIFOR	6.81%	6.85%
5-year MIFOR	7.13%	7.18%

 

End

 

US$1 = INR 95.0000

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

 

Edited by Rajeev Pai

 

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