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Informist, Friday, Jul. 24, 2026

By Cassandra Carvalho

MUMBAI – Overnight indexed swap rates ended down Friday, reversing their early rise as Brent crude oil prices fell intraday, dealers said. September Brent crude oil futures slipped below the key $100-per-barrel mark to $97.76 at 1700 IST. 

The one-year swap rate closed at 5.98%, down from 6.04% Thursday and from a day's high of 6.07%. The five-year swap rate ended at 6.49%, down from 6.53% Thursday and from the day's high of 6.57%. The one-year swap rate ended the week 3 basis points higher, while the five-year swap ended 11 bps higher. "Bonds are supported, but we're seeing some (upward) pressure on OIS. I think in OIS that is likely to continue," a dealer at a private sector bank said. 

Swap rates opened higher as near-month Brent crude oil futures rose overnight to $101 per barrel at 0900 IST, from $98.72 per barrel at 1700 IST Thursday. The yield on the 10-year US Treasury note was 4.69% at 1700 IST, unchanged from the same time Thursday, but down from 4.72% at 0900 IST.

While offshore traders continued to pay fixed rates in swaps tracking the rise in oil prices, domestic banks' asset and liability managers received fixed rate contracts, dealers said. Swap rates were lucrative to receive, especially since the non-funded five-year OIS rate had risen above the yield on the five-year benchmark 6.36%, 2031 bond, dealers said. "It wasn't 'some' receiving today (Friday), it was severe receiving," a dealer at a state-owned bank said. "There was a fall of around 8-9 bps, a major bank has hedged something today and crude has helped."

Some traders continued to pay fixed rates to hedge their purchases in the bond market, with inflation seen rising as Brent rose above $100 per barrel, while bond yields could fall if Bloomberg includes Indian bonds in its flagship Global Aggregate Index. The OIS rate curve steepened this week, as traders priced in inflation fears in the five-year swap rates, but expectations of rate hikes in India were little changed, with the first hike seen in October or later. 

The total notional trading volume reported on Clearing Corp. of India Ltd.'s derivatives trading platform rose to INR 620.10 billion from INR 486.80 billion Thursday.

OUTLOOK

Swaps are not traded on Saturdays. On Monday, swap rates are seen tracking near-month Brent crude oil prices and US Treasury yields ahead of the meeting of the US Federal Open Market Committee next week. Traders will also track the movement in government bond yields, especially the five-year bond, after the spread between its yield and the 5-year OIS inverted briefly this week. 

Offshore traders are seen paying fixed-rate contracts as the interest rate differential between safe-haven debt such as US Treasuries and emerging market rates such as Indian swap rates narrows, making the latter less appealing. Domestic traders may continue to pay fixed-rate contracts to hedge their bond purchases as bets of India's inclusion in Bloomberg's Global Aggregate bond index are likely to limit a rise in bond yields.

Receiving by foreign and private sector banks hedging FCNR(B) deposits and traders conducting reverse bond swaps may cap any rise in swap rates. Traders expect received flows from domestic banks' asset and liability management desks to step up if the five-year OIS rises to around 6.70%. The one-year swap rate is roughly pricing in more than three repo rate hikes within 12 months. 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. Liquidity conditions eased Friday, with the overnight Mumbai Interbank Outright Rate set below the repo rate for the first time since May 18.

A sharp rise in crude oil prices could exert upward pressure on short-term rates as well, as rate hikes by the RBI's Monetary Policy Committee become more imminent. Traders are also closely tracking the movement of the rupee, with the currency depreciating sharply amid the rise in crude oil prices. The currency depreciation could also erode expectations of foreign inflows. The one-year swap rate is seen in the range of 5.85-6.20% and the five-year at 6.35-6.66%.

End

US$1 = INR 96.5625

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

Edited by Saji George Titus

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