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Informist, Tuesday, Jul. 21, 2026

 

By Cassandra Carvalho

 

MUMBAI – Overnight indexed swap rates ended higher as Brent crude oil futures for delivery in September topped $90 per barrel near the end of the session Tuesday, dealers said. The five-year OIS rose above its 50-day moving average of about 6.42-6.43% to end at its day's high. Offshore traders were paying fixed rates in OIS, tracking the rise in oil prices, they said. 

 

The one-year swap rate closed at 5.97%, up from 5.95% Monday. The five-year swap rate ended at 6.44%, up from 6.41% Monday. The total notional trading volume reported on Clearing Corp. of India Ltd.'s derivatives trading platform fell to INR 462.65 billion Tuesday from INR 745.65 billion Monday. 

 

"Crude going to $90 (per barrel) and settling there is not a comforting thought," a dealer at a private sector bank said. "The market will hold onto positions until September because of (foreign) flows, but we're seeing a pay on dips in OIS." Swap rates opened slightly lower Tuesday after data released by the Reserve Bank of India post-market hours Monday showed that foreign inflows received till Friday through the various schemes it had rolled out on Jun. 8 to shore up capital were higher than most traders were expecting. However, swaps later rose tracking a rise in oil prices. Domestic banks received fixed rate contracts to hedge inflows through foreign currency non-convertible bank deposits.

 

Government bond yields have more scope to fall compared with swap rates, with foreign inflows seen aiding demand for gilts, while macroeconomic triggers such as a rise in crude oil prices due to the West Asia war and its impact on inflation are being priced into swaps. The five-year benchmark 6.36%, 2031 bond yield last traded at 6.47%, just a little higher than the five-year OIS rate of 6.44%, making it feasible to receive OIS and sell the five-year bond, dealers said. 

 

The paying by offshore traders took the five-year OIS above its key technical level, with 6.49% seen as the next important level, followed by 6.52%, dealers said. "If you see, even yesterday (Monday) it (five-year OIS) tried to test 50DMA (50-day moving average), it broke and went to 6.49%, but there was a reversal, and it closed about 40 (6.40%). Today, because of crude, it has broken again," a dealer at another private sector bank said. 

 

OUTLOOK

On Wednesday, 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 track of any received bets by domestic banks' asset and liability management desks, with aggressive flows from them pausing amid a rise in crude oil prices. Traders expect these received flows to step up if the five-year OIS rises to around 6.70%. 

 

Traders have mixed views on the trajectory of the swap rate curve, with some expecting the curve to steepen – wherein longer-term swap rates rise faster than short-term ones as foreign inflows received through the various schemes are robust and keep short-term rates anchored due to the liquidity boost. Traders expect flows totalling around $40 billion by the first week of August. 

 

However, a further rise in crude oil prices could put upward pressure on short-term rates as well, as rate hikes by the RBI's Monetary Policy Committee become more imminent. The movement in the rupee could also lend cues, with traders concerned about its depreciation despite the central bank deploying measures to offset the fall. The RBI's intervention in the foreign exchange market has also spurred a drain of rupee liquidity. The overnight Mumbai Interbank Outright Rate has not been set below the repo rate since May 18. The one-year swap rate is seen in the range of 5.80-6.10% and the five-year at 6.25-6.52%.

 

	At 1700 IST	MONDAY
1-year OIS	5.97%	5.95%
2-year OIS	6.14%	6.12%
5-year OIS	6.44%	6.41%
2-year MIFOR	6.91%	6.93%
5-year MIFOR	7.10%	7.12%

 

End

 

US$1 = INR 96.2350

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

 

Edited by Saji George Titus

 

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