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Informist, Wednesday, Jul. 15, 2026

 

By Janwee Prajapati

 

MUMBAI – Overnight indexed swap rates ended steady Wednesday due to a lack of escalation in the war in West Asia, dealers said. Some foreign participants likely paid fixed rates, which pulled up the swap rates, dealers said. However, a fall in US Treasury yields limited the rise in overnight indexed swap rates, dealers said. A slight fall in Brent crude oil prices prompted some traders to unwind their paid bets, dealers said. 

 

The one-year swap rate closed at 5.94%, unchanged from Tuesday. The five-year swap rate ended at 6.38%, up one basis point from Tuesday. The one-year and five-year swap rates moved only 4–5 basis points during the trade Wednesday, given the lack of escalation in the West Asian conflict and uncertainty over the US-Iran peace deal, dealers said.  At 1700 IST Wednesday, Brent crude futures for September delivery were $85.19 per barrel, down from the day's high of $86.55 per barrel and $86.12 per barrel at the same time Tuesday.

 

Some traders do not expect the five-year swap rate to rise above the technically crucial level of 6.40% as the escalations in West Asia simmered down, dealers said. However, foreign players likely paid fixed rates, which pushed up the swap rates, dealers said. The total notional trading volume reported on Clearing Corp. of India Ltd.'s derivatives trading platform was at INR 504.60 billion, down from INR 541.10 billion the previous day.

 

"Foreign players must be paying (paying fixed rates), continuing their momentum from yesterday (Tuesday)," a dealer at a private sector bank said. "(Swap) rates were up in the morning, but we closed almost flat because the US Treasury yield was lower, and the US CPI also came in lower."  

 

At 1700 IST, the yield on the 10-year benchmark US Treasury note was at 4.61%, down from 4.62% at the same time Tuesday. Data released after Indian market hours Tuesday showed June CPI inflation in the US was much lower than expected. US Treasury yields fell as US CPI declined 0.4% month-on-month in June, compared with the Wall Street Journal poll estimate of a 0.1?ll. The 12-month CPI inflation rate was 3.5%, against a forecast of 3.8%. Comments from US Federal Reserve Chair Kevin Warsh on Tuesday were in line with expectations and did not heighten fears of imminent rate increases, dealers said. This also ebbed fears of a rate hike by the Reserve Bank of India's Monetary Policy Committee, dealers said.

 

Back home, traders had earlier expected the RBI's monetary policy to hike rates in the second half of the current financial year following the ceasefire between the US and Iran, dealers said. However, renewed tensions in West Asia led Brent crude oil prices to rise above the psychologically crucial level of $85 per barrel, which in turn sparked expectations of a rate hike at the October meeting, dealers said. Some traders, on the other hand, do not expect any rate hike before the December meeting. The rate-setting panel may set the stage for a rate hike in December in its October meeting, dealers said.

 

"(One-year) OIS is still pricing in two to three rate hikes (within 12 months). Rural inflation has also been going up, more than urban inflation, so the question is now whether the RBI will hike or not in October," a dealer at a state-owned bank said.

 

India's June CPI inflation was broadly in line with expectations, nudging traders to pare bets on any imminent repo rate hike, dealers said. India's CPI inflation rose to 4.38% in June, broadly in line with traders' expectations, but rose above the Reserve Bank of India's 4% medium-term inflation target for the first time since January 2025.          

 

OUTLOOK

On Thursday, OIS rates will take cues from movements in crude oil prices and US Treasury yields, dealers said. The developments in West Asia will also influence traders' views on domestic rate increases due to the potential impact on imported inflation, they said. 

 

Deficient rainfall and higher food prices may 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. The RBI projects CPI inflation to average 5.9% in Oct-Dec, higher than the policy rate of 5.25%. The view of rate increase in India is influenced by the expectation that the US Federal Open Market Committee may also hike rates in 2026, dealers said. 

 

Traders await Bloomberg's decision on the inclusion of Indian gilts in its flagship index, with most traders betting on a favourable decision. Traders also expect overnight rates to ease due to a liquidity boost from inflows into foreign-currency non-resident bank deposits. The Bloomberg announcement on the inclusion of Indian bonds is expected any time between this week and September, dealers said. 

 

The movement in the rupee could also lend cues. The one-year swap rate is seen in the range of 5.78-6.05% and the five-year at 6.18-6.45%. 

 

	At 1700 IST	TUESDAY
1-year OIS	5.94%	5.94%
2-year OIS	6.12%	6.11%
5-year OIS	6.38%	6.37%
2-year MIFOR	6.89%	6.89%
5-year MIFOR	7.08%	7.08%

 

End

 

US$1 = INR 96.26

 

Edited by Saji George Titus

 

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