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Informist, Monday, Jun. 1, 2026

By Cassandra Carvalho

MUMBAI – Overnight indexed swap rates ended off the day's highs Monday, as traders rebalanced positions to square off after swap rates rose earlier in the day, dealers said. Swaps rose, tracking a rise in crude oil prices and US Treasury yields over the weekend as the US and Iran failed to reach a peace deal and instead, the US recommenced strikes on Iran. However, traders said that swaps were already pricing in rate hikes and were unlikely to sustain a rise unless crude oil prices rose substantially. Moreover, traders refrained from taking fresh bets ahead of the Reserve Bank of India's Monetary Policy Committee meeting Friday. 

The one-year swap rate ended at 6.12%, up from 6.10% Friday, and off the day's high of 6.15%. The five-year OIS rate ended at 6.64%, up from 6.61% Friday and also off the day's high of 6.68%.

"US yields are not moving much higher and the dollar-rupee is appreciating. Intraday people are trying to sell (pay OIS) but their covering is only causing recovery," a dealer at a private sector bank said.

The yield on the benchmark 10-year US Treasury note was 4.46% at 1700 IST, higher than 4.45% at the same time Friday. Swaps rose at market open, tracking a rise in Brent crude oil futures for delivery in August, which were $93.79 per barrel at close of swap trading hours, rising from $92.00 at the same time Friday. The rise was also a technical reversal after the five-year swap ended near its 50-day moving average Friday, dealers said. Offshore traders were also likely paying fixed rates in swaps, dealers said. 

"The technical reason is there, but right now everyone's just looking at the Iran situation, everyone's worried that that has started again and your oil will go up," a dealer at another private sector bank said. The US and Iran both carried out strikes on the Gulf region over the weekend and Monday, testing a fragile ceasefire that the two countries had agreed to, hours before RBI Governor Sanjay Malhotra had announced the policy decision in April. 

Domestic traders, likely mutual funds, were receiving fixed rate contracts. Nearing the end of trade, swaps came off the day's highs, along with gilt yields. The total notional trading volume reported on Clearing Corp. of India Ltd.'s derivatives trading platform was INR 465.55 billion, slightly higher than INR 413.20 billion Friday.

OUTLOOK

On Tuesday, swap rates will track crude oil prices as the US, Iran and Israel have recommenced strikes in the Gulf region. However, traders will refrain from taking fresh positions ahead of the outcome of the Reserve Bank of India's Monetary Policy Committee meeting on Friday, 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 Friday. At least one of the three external MPC members could vote for a rate hike, dealers said. A few traders expect a change of stance to 'withdrawal of accommodation' from neutral. Traders expect the RBI to cut its GDP growth forecast for the financial year 2026-27 (Apr-Mar) by 20-30 bps while the estimate for FY27 CPI inflation could be raised to above 5% from 4.6% currently, dealers said. If the inflation forecast is raised by 50 bps, the rate hike cycle could be quicker, 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 last week. Traders have mixed views on liquidity, with some saying that liquidity will be comfortable once the RBI's transfer of surplus to the Centre reflects in the banking system. Others expect the overnight Mumbai Interbank Outright Rate to remain elevated, as the central bank is unlikely to infuse durable liquidity in the system to avoid a rise in inflation, dealers said. 

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

End

US$1 = INR 94.99

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

Edited by Avishek Dutta

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