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Informist, Tuesday, Jun. 9, 2026

 

By Cassandra Carvalho

 

MUMBAI – Overnight indexed swap rates ended lower Tuesday, with the five-year swap closing at its lowest since Apr. 22, as offshore traders received fixed rate contracts, dealers said. Across segments, sentiment improved after clarity emerged on the Reserve Bank of India's measures to attract foreign inflows, which are seen favourable, they said. The RBI published the notifications Monday. This, along with increasing bets of a US-Iran peace deal and a fall in Brent crude oil prices, boded well for a fall in swaps.

 

The one-year swap rate ended at 5.99% Tuesday, against 6.05% Monday. The fall is seen as a decisive break below the key 6.00% level, and is the lowest close since May 11. The five-year OIS rate ended at 6.43%, against 6.54% Monday. The five-year swap saw its steepest fall since May 25, down 11 basis points. The swap has sustained a fall below its 50-day moving average after breaking the level Friday, for the first time in over seven months, dealers said. 

 

"We saw five-year (OIS) breaking 6.50% today (Tuesday) because the RBI circular is seen supporting the rupee, and now there can be a further downside, to 6.20-6.30% is possible," a dealer at a private sector bank said.

 

Details of the RBI's measures came as relief to traders, with eligibility for overseas foreign currency borrowings not restricted to just state-owned entities but to all Authorised Dealer Category-I banks. Allowing leveraging of three- to five-year foreign-currency non-resident deposits also aided sentiment, dealers said. Traders are confident of the measures attracting large foreign inflows, with the only hurdle now left being whether the momentum from foreign investors sustains, they said. Foreign portfolio investors have been piling onto gilts, ever since their tax on these instruments was nullified Friday, taking their total gilt holdings through the Fully Accessible Route to a record high. 

 

Traders expect swaps maturing in more than a year to fall more. However, a fall in swap rates, especially short-term rates is seen limited as bets of rate hikes in FY27 persist, dealers said. Expectations of rate hikes by the US Federal Open Market Committee, especially due to strong jobs data and sticky inflation in the US also limited the fall in swaps, they said. 

 

"Sentiment has changed. When people are saying $100 billion of inflows could come (because of the RBI's measures), it could. It could also be lower than $40 billion, that risk is there. But in OIS, people are paying two-year OIS and receiving five-year," a dealer at another private sector bank said. Most traders expect the measures to attract foreign inflows of at least $40 billion.

 

The total notional trading volume reported on Clearing Corp. of India Ltd.'s derivatives trading platform was INR 470.30 billion, similar to INR 462.80 billion Monday.

 

OUTLOOK

On Wednesday, swap rates will continue to track crude oil prices and developments in the US-Iran peace negotiations. However, swaps are seen trending lower in the near term due to expectations of foreign flows. Swaps could tumble if a peace deal between the US and Iran is announced. On the monetary policy front, traders will still price in a quicker rate cycle in India, likely to begin as early as August due to elevated oil prices and as the monsoon is expected to be weak, stoking inflation, dealers said.

 

A likely liquidity boost due to the RBI's measures to shore up capital could also temper a rise in short-term rates, dealers said. 

 

Traders will also track any development in the inclusion of Indian government bonds on Bloomberg Index Services' flagship Global Aggregate Index after the RBI and the Centre Friday unveiled a slew of measures to improve foreign inflows, dealers said. Government sources said that such measures were intended to secure the inclusion. Bloomberg, which deferred its decision on the inclusion of Indian bonds in January, said it plans to provide the next update on the potential inclusion by mid-2026. Most traders expect the review this month.

 

Traders await India's CPI inflation data for May, scheduled for Friday. Headline retail inflation is likely to have risen to a 16-month high of 4% in May, reaching the Reserve Bank of India's medium-term inflation target, according to the median in an Informist poll of 12 economists.

 

The movement of the rupee and US Treasury yields could also lend cues. Traders await the US FOMC's rate decision later this month, wherein status quo on interest rates is expected. Fed fund futures are pricing in a 43% chance of a 25 bps rate hike by the FOMC by end of 2026, according to the CME FedWatch tool. The one-year swap rate is seen at 5.85-6.10% and the five-year at 6.30-6.64%.

 

	At 1700 IST	MONDAY
1-year OIS	5.99%	6.05%
2-year OIS	6.17%	6.24%
5-year OIS	6.43%	6.54%
2-year MIFOR	6.57%	6.67%
5-year MIFOR	6.81%	6.94%

 

End

 

US$1 = INR 95.3500

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

 

Edited by Avishek Dutta

 

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