More Stories

Informist, Monday, Jul. 6, 2026

 

By Aaryan Khanna

 

NEW DELHI – Overnight indexed swap rates fell in the latter half of trade as US Treasury yields and crude oil prices fell to intraday lows, dealers said. Both the one- and five-year swap rates ended at their lowest in four months. The fall was limited as swap rates did not reflect any monetary policy tightening in the next three months, they said. 

 

The one-year swap rate closed at 5.73%, down from 5.78% Friday and its lowest closing level since Mar. 10. The five-year swap rate ended at 6.13%, down from 6.18% Friday, ending at its lowest level since Mar. 5. Both levels were last hit when the war in West Asia had just begun, and rate hike expectations were beginning to rise in India. Swap rates have fallen as crude oil prices have declined following the signing of a memorandum of understanding between the US and Iran last month.

 

Brent crude futures for September delivery fell to as low as $71.02 per barrel during Indian market hours, down 2% from its high, and were near $72 a barrel by the end of Indian market hours. Hamas Monday declared it was stepping aside from day-to-day governance of the Gaza Strip and vacating office, as part of a peace programme suggested by US President Donald Trump to stop the extended war in the region between the Palestinian force and Israel. The 10-year US Treasury was at 4.46% at 1700 IST, down from 4.49% at the end of Indian market hours Friday.

 

"Some of the paid positions may have gotten stopped out (traders hitting stop-losses), which is why you had that level of 6.14% breaking (on the five-year swap rate)," a dealer at a private-sector bank said. "I don't think people are reassessing India's rate cycle. They are just lightening the risk of US rate hikes." The total notional trading volume reported on Clearing Corp. of India Ltd.'s derivatives trading platform was INR 422.15 billion, up from INR 317.70 billion Friday. 

 

The five-year swap rate has twice fallen to an intraday low of 6.14% in the past two weeks before rising by the end of trade. Monday, the five-year swap rate ended at the day's low. Offshore interest in paying fixed rates in India's OIS market had declined after lower-than-expected US job gains, dealers said. Most traders now only expect a single 25-basis-point rate hike by the Federal Open Market Committee in the remainder of 2026, down from two rate increases expected before the employment data.

 

This has subdued the fall in swap rates but has been overridden by domestic cues. RBI Governor Sanjay Malhotra said last month that discussing rate hikes was premature, as there were no signs of second-order inflation effects in the economy. Still, an expected rise in food inflation later in the financial year made traders wary of receiving swap rates at current levels, especially amid an uncertain geopolitical environment, dealers said.

 

Consequently, the one-year OIS rate – which was pricing in about 100 bps of rate increases a month ago – now reflects only half of those expectations. Most traders still expect the RBI's Monetary Policy Committee to hike the repo rate from December onwards, with another potential policy rate increase in the first half of 2027. Without rate hikes, monetary policy would be quite accommodative and could stoke inflation, as the repo rate is currently 5.25% and the RBI projects average CPI inflation at 5.1% in 2026-27 (Apr-Mar). 

 

"The market has already priced out rate hikes in August and October, but the pricing still reflects maybe 2 rate hikes in a year," a dealer at a foreign bank said. "It's not possible to fall much below this as long as other Asian rate markets show hikes and so does the US, where one rate hike is expected in 2026."

 

OUTLOOK

On Tuesday, swap rates are seen tracking the movement of US Treasury yields and crude oil prices overnight. Offshore cues are in focus due to the lack of scheduled domestic rate triggers until next week's CPI data release, dealers 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. However, no rate hike is expected until December after assessing recent commentary from RBI officials, dealers said. 

 

Traders await Bloomberg's decision on the inclusion of gilts in its flagship index, with most traders betting on an inclusion. Traders also expect overnight rates to ease due to a liquidity boost from inflows into foreign-currency non-resident bank deposits.

 

The movement of the rupee could also lend cues. The one-year swap rate is seen in the range of 5.60-5.90% and the five-year at 6.05-6.23%. 

 

	At 1700 IST	FRIDAY
1-year OIS	5.73%	5.78%
2-year OIS	5.88%	5.91%
5-year OIS	6.13%	6.18%
2-year MIFOR	6.74%	6.74%
5-year MIFOR	6.97%	6.97%

 

End

 

US$1 = INR 95.40

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

 

Edited by Saji George Titus

 

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

 

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd. by NSE Data & Analytics Ltd., a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt. Ltd.

 

Informist Media Tel +91 (11) 4220-1000

Send comments to feedback@informistmedia.com

 

© Informist Media Pvt. Ltd. 2026. All rights reserved.