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Informist, Monday, Jul. 20, 2026

 

By Cassandra Carvalho

 

MUMBAI – Overnight indexed swap rates ended off the day's highs Monday, tracking an intraday fall in crude oil prices after Iran said it had received proposals from mediators on resumption of US-Iran peace negotiations and a ceasefire, dealers said. Earlier in the session, the five-year OIS hit its highest level in over a month after Brent crude oil futures touched $91.42 per barrel amid a sharp escalation of the conflict in the Gulf over the weekend. Several traders expect the five-year OIS to rise as the West Asia conflict prolongs. 

 

The one-year swap rate closed at 5.95%, inching higher from 5.93% Friday but off the day's high of 6.02%. The five-year swap rate ended at 6.41%, up from 6.38% Friday. The rate had risen to 6.49%, the highest since Jun. 10, intraday.

 

"If crude remains above $85 (per barrel) and if escalation in the war happens, five-year (OIS) could go to its pre-MPC level of around 6.60%. We're not seeing a 6.10% any more. Even if there's US-Iran diplomacy or some deal, the lowest it (five-year OIS) could go to is 6.25%," a dealer at a state-owned bank said.

 

The total notional trading volume reported on Clearing Corp. of India Ltd.'s derivatives trading platform rose sharply to INR 745.65 billion Monday from INR 316.25 billion Friday, as swap rates closely tracked the movement of crude oil prices during the day. 

 

Some expect the swap rate curve to steepen, with systemic liquidity seen increasing due to inflows from foreign currency non-resident bank deposits, leaving short-term rates anchored, dealers said. Some domestic banks received fixed rates Monday to hedge these deposits, dealers said. However, a rise in crude oil prices and the subsequent rise in bets of rate hikes by the Reserve Bank of India's Monetary Policy Committee are being priced into longer-term swap rates such as the five-year OIS, dealers said. Exchange-traded funds were paying fixed rates in OIS Monday, dealers said. 

 

On the downside, receiving in the five-year OIS was capped near the rate's 50-day moving average of about 6.56%, which led to a bout of paying, taking the rate to a closing level of 6.41%, dealers said. On the upside, receiving to hedge FCNR(B) deposits is likely to cap a rise, dealers said, even as the trend is seen upwards. This receiving is likely to increase in volume as banks step in to receive at around 6.70-6.80% on the five-year OIS rate, they said. 

 

"People are saying that this level should hold because again it's technicals at play, 50DMA (daily moving average), 200DMA, all of that," a dealer at a mutual fund said. 

 

OUTLOOK

On Tuesday, swap rates will continue to track movements in crude oil prices and US Treasury yields, dealers said. Offshore traders are likely to continue paying fixed rate contracts if the conflict in West Asia persists. The developments in West Asia will also influence traders' views on domestic rate increases due to the potential impact on imported inflation.

 

The one-year swap rate is roughly pricing in nearly three repo rate hikes within 12 months. Traders will also keep a track of any received bets by domestic banks' asset and liability management, with aggressive flows from these desks having hit a pause amid a rise in crude oil prices.

 

However, on the domestic side, swaps could open lower after the RBI, post-market hours, released data on the foreign inflows received till Friday through the various schemes it had rolled out last month to shore up capital. This figure is much better than most traders were expecting, at $20.72 billion raised through foreign currency non-resident bank deposits, banks' overseas foreign currency borrowing and public sector undertakings' external commercial borrowing. Traders were expecting inflows of around $20 billion by the first week of August. 

 

The movement in the rupee could also lend cues. The one-year swap rate is seen in the range of 5.78-6.10% and the five-year at 6.25-6.52%.

 

	At 1700 IST	FRIDAY
1-year OIS	5.95%	5.93%
2-year OIS	6.12%	6.09%
5-year OIS	6.41%	6.38%
2-year MIFOR	6.93%	6.89%
5-year MIFOR	7.12%	7.08%

 

End

 

US$1 = INR 96.4450

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

 

Edited by Saji George Titus

 

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