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Informist, Tuesday, Jul. 28, 2026

By Cassandra Carvalho

MUMBAI – Overnight indexed swap rates were off lows Tuesday, ending steady in thin trade, despite a fall in Brent crude oil prices as caution set in ahead of key interest rate decisions in the US and India, with some traders also wary that the fall in oil prices is unlikely to sustain, dealers said. 

The one-year swap rate closed at 5.88%, down from 5.91% Monday. The five-year swap rate ended at 6.35%, from 6.36% Monday. The total notional trading volume reported on Clearing Corp. of India Ltd.'s derivatives trading platform fell to INR 304.40 billion from INR 542.50 billion Monday.

"It's a level-to-level trade now. Whoever had taken positions earlier are just booking profits," a dealer at a primary dealership said. "We've already seen a 10-bps rally, now it depends on Fed policy."

Brent crude oil futures for delivery in October fell to $84.25 per barrel at 1700 IST, from $84.66 at 0900 IST and $85.97 per barrel at 1700 IST Monday. However, the five-year swap rate ended off the day's low of 6.32% and close to the day's high. The yield on the 10-year US Treasury note was 4.63% at 1700 IST, inching lower from 4.64% at the same time Monday.  

Traders were cautious of the US Federal Open Market Committee's interest rate decision due at 2330 IST Wednesday, with dealers expecting a "hawkish hold" on rates. They expect US Federal Reserve Chair Kevin Warsh to opt for a restrictive tone, focussing on curbing a rise in inflation which is already above the FOMC's target range. A rate hike by the Fed would accelerate a rate hike cycle by the Reserve Bank of India's Monetary Policy Committee, and so traders are keeping a close watch. Just after this week's Federal Open Market Committee meeting, traders await the outcome of the MPC meeting next week, with a status quo on rates expected, but the rate-setting panel could show a greater focus on inflation, with headline CPI breaching the RBI's target last month, dealers said. 

Some dealers also expect the rise in crude oil prices to be short-lived, with no certainty on that front until a confirmed deal between the US and Iran, they said. Swaps could see a further upside in the near-term, dealers said. 

OUTLOOK

Wednesday, swap rates are seen tracking near-month Brent crude oil prices and US Treasury yields, with the latter to lend cues ahead of the key interest rate decision by the US FOMC. Traders will also track the movement in government bond yields, especially the five-year bond, with close attention on its spread with the five-year swap rate. A sharp drop in volumes is likely to persist Wednesday, and possibly going into the next week ahead, until traders take positions before the MPC outcome, dealers said. 

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. Receiving by foreign and private-sector banks hedging foreign currency non-resident bank deposits and traders conducting reverse bond swaps may cap any rise in swap rates. The movement of the rupee and overnight borrowing rates will also lend cues. The one-year swap rate is seen in the range of 5.80-6.10% and the five-year at 6.20-6.50%.

End

US$1 = INR 95.8525

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

Edited by Deepshikha Bhardwaj 

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