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Informist, Friday, Jun. 19, 2026

 

By Cassandra Carvalho

 

MUMBAI – Overnight indexed swap rates inched higher Friday, tracking a rise in Brent crude oil futures after the US and Iran delayed peace talks. However, short-term swaps ended the week lower as traders priced out imminent rate hikes by the Reserve Bank of India's Monetary Policy Committee after the two warring nations agreed to a memorandum of understanding and Brent crude oil prices fell to their lowest since early March.

 

The one-year swap rate closed at 5.90% Friday from 5.89% Thursday. The five-year swap rate ended at 6.34%, up from 6.32% the previous day. The one-year swap ended nearly 7 basis points lower on week while the five-year swap ended the week unchanged. The spread between the two swaps was 44 bps, widening from 37 bps on Jun. 12. The total notional trading volume reported on Clearing Corp. of India Ltd.'s derivatives trading platform was INR 452.05 billion, down from INR 546.70 billion Thursday. Most of this was concentrated in the one-year OIS, at INR 161.95 billion.

 

"We're only seeing some churning in one-year today (Friday), people are profit-booking and those who feel like there won't be rate hikes this year must be receiving, but mostly everyone is paying," a dealer at a primary dealership said.

 

The Brent crude oil futures contract for delivery in August was at $79.92 per barrel at 1700 IST, after hitting a high of $80.77 during the day, up from $78.67 per barrel at the end of swap market hours Thursday. Oil prices rose after US Vice-President J.D. Vance postponed a scheduled trip to Switzerland for a fresh round of talks with Iran.

 

Brent is currently at its lowest in the near term and is likely to rise as supply chains take time to restore, dealers said. Subsequently, swaps are seen rising, with the Monetary Policy Committee still on track to raise the repo rate in the current financial year, dealers said. Additionally, traders began to price in the likelihood of the US Federal Open Market Committee raising interest rates in 2026, after the commentary by the rate-setting panel was "hawkish" or much more restrictive than they had expected, dealers said. 

 

"We will see a flattening now because Fed was so hawkish, we didn't see it in the action yesterday even though Treasury yields have risen, but today (Friday) it showed," a dealer at a private-sector bank said.  

 

Swaps could also rise tracking government bond yields if Bloomberg Index Services does not include Indian sovereign bonds in its flagship Global Aggregate Index within the next few months, dealers said. Speculation of the inclusion not happening rose this week after Reuters, citing sources, reported that the RBI is not in favour of direct settlement of gilts through offshore platforms such as Euroclear, dealers said.

 

OUTLOOK

Swaps are not traded Saturdays. Monday, swap rates are seen tracking Brent crude oil, along with any indication of the inclusion of gilts in Bloomberg's Global Aggregate Index, with several dealers expecting the review this month. Traders will also assess the minutes of the Monetary Policy Committee's June meeting released after market hours Friday.

 

Swaps are seen rising in the medium term as domestic inflation is likely to rise due to the weak monsoon and supply disruptions in crude oil, dealers said. Swap rates may fall if there is an uptick in non-resident dollar-denominated bank deposits of three- to five-year tenors. This is likely to lead to demand for short-term bonds and banks may begin to unwind their paid fixed rate positions that were hedging against a fall in the prices of their bond holdings, dealers said.

 

A likely liquidity boost due to the RBI's measures to shore up capital is seen adding to the fall in short-term rates, but at the same time, the RBI is likely to drain this liquidity ahead of a rate hike cycle, dealers said. Most traders now do not expect a repo rate hike in August, though concerns over deficient rainfall and higher food prices remain. The Monetary Policy Committee may raise the repo rate in October, especially if the US Fed begins raising rates, they said.

 

The movement of the rupee could also lend cues. The one-year swap rate is seen at 5.75-6.00% and the five-year at 6.20-6.42%.

 

	At 1700 IST	THURSDAY
1-year OIS	5.90%	5.89%
2-year OIS	6.06%	6.05%
5-year OIS	6.34%	6.32%
2-year MIFOR	6.88%	6.77%
5-year MIFOR	7.11%	7.00%

 

End

 

US$1 = INR 94.32

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

 

Edited by Rajeev Pai

 

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