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Informist, Tuesday, Jun. 30, 2026

 

By Aaryan Khanna

 

NEW DELHI – Overnight indexed swap rates ended off lows Tuesday as traders unwound their paid fixed rate positions, booking profit at levels they considered attractive, dealers said. Even at Monday's close, swap rates are not reflecting domestic rate hikes in August or October and that has led to fewer traders receiving fixed rates, they said. OIS rates had fallen, tracking a slump in the 10-year government bond yield to a three-month low earlier. 

 

The one-year swap rate closed at 5.76% against 5.77% Monday, after falling to an intraday low of 5.73%. The five-year swap rate ended at 6.18%, inching down from 6.19% Monday but rebounding from the low of 6.14%. The total notional trading volume reported on Clearing Corp. of India Ltd.'s derivatives trading platform surged to INR 515.00 billion Tuesday from INR 276.25 billion Monday.

 

"The rally in swaps is over, there is no juice to run further down unless the US says categorically it is not hiking," a dealer at a primary dealership said. "The market has already taken out August and October rate hikes, so there is not much to play for fundamentally, and then 6.12% is a technical barrier also (for the five-year swap rate)."

 

Dealers cited a lack of fresh interest-rate cues, either on the domestic or global front, for the lack of movement in OIS rates, as crude oil prices and US Treasury yields were largely unchanged overnight. However, trading volumes increased as domestic banks and institutions engaged in two-way activity. Early in the day, OIS rates tracked movements in gilt yields. The 10-year benchmark gilt yield fell over 5 basis points intraday to a three-month low of 6.70%, erasing the fall by the end of trade and closing flat at 6.75% Tuesday.

 

Some banks increased their bets that the Reserve Bank of India's Monetary Policy Committee will not hike policy rates at all in 2026, though traders said this was a low-conviction trade. Most were wary that the US Federal Open Market Committee's later-in-the-year rate hikes could prompt offshore traders to pay fixed rates in India, where such hikes were not priced in. Meanwhile, investors – including mutual funds and banks' asset-liability management desks – were hedging their bond portfolios by paying swap rates.

 

"OIS didn't have anything fresh to trade on today (Tuesday). When g-sec was hot, OIS was also going down in tandem," a dealer at a private-sector bank said. "Whenever rates are going lower than these levels, we are seeing both unwinding (of received fixed rate bets) and some fresh paying, which is natural since rates have fallen so sharply in the last few weeks." The five-year OIS rate has fallen 43 bps in June, while the one-year swap is down 34 bps.

 

OUTLOOK

Swap rates are seen tracking US Treasury yields and crude oil prices Wednesday. Traders are likely to play on spreads between swaps and gilt yields as the latter have greater scope to fall in the near term, dealers said. Lacking offshore triggers, swap rates are expected to remain steady with no domestic interest rate triggers this week, they said.

 

Deficient rainfall and higher food prices are expected to push up retail inflation in the coming months, while the RBI is likely to drain systemic liquidity ahead of a likely rate hike cycle, dealers said. Though most traders no longer expect a repo rate hike in August or October, they are wary of a US Federal Open Market Committee rate hike that could sharply change expectations for domestic rates, dealers said.

 

The movement of the rupee could also lend cues Wednesday. The one-year swap rate is seen at 5.60-5.90% and the five-year at 6.02-6.25%.

 

	At 1700 IST	MONDAY
1-year OIS	5.76%	5.77%
2-year OIS	5.91%	5.91%
5-year OIS	6.18%	6.19%
2-year MIFOR	6.71%	6.73%
5-year MIFOR	6.91%	6.94%

 

End

 

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

 

Edited by Saji George Titus

 

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