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Informist, Wednesday, Jul. 29, 2026

By Cassandra Carvalho

MUMBAI – Overnight indexed swap rates ended higher Wednesday in thin trade as traders paid fixed rate contracts tracking a rise in Brent crude oil price, dealers said. Some traders also squared off their received bets ahead of the decision of the US Federal Open Market Committee due at 2330 IST, they said. Caution ahead of the interest rate decision in the world's largest economy also capped volumes in the swap market, they said. 

The one-year swap rate closed at 5.93%, up from 5.88% Tuesday. The five-year swap rate ended at 6.40%, against 6.35% Tuesday. Brent crude oil futures for delivery in October rose to $85.56 per barrel at 1700 IST from $84.25 at the same time Tuesday. The yield on the 10-year US Treasury note was 4.63% at 1700 IST, unchanged from the same time Tuesday.

"There's nothing happening today (Wednesday). Some foreign banks are taking some position before FOMC, that's it," a dealer at a state-owned bank said. Traders expect the US rate-setting panel to hold interest rates steady Wednesday, though they expect US Federal Reserve Chair Kevin Warsh to opt for a "hawkish" or restrictive tone at the outcome, with a focus on curbing a rise in inflation, which was above the Fed's target. Traders are also wary of rising uncertainty on the policy front with the Fed Chair unlikely to provide forward guidance, they said.

Hawkish commentary by the Fed could push up US Treasury yields, leading to offshore traders continuing to pay fixed rates, dealers said. As rate hikes get priced in the US, it could accelerate a rate hike cycle in India, dealers said. Offshore traders were largely inactive Wednesday, with domestic traders exiting their reverse bond swap trades, dealers said. The turnover in the most-liquid five-year swap rate was INR 117.85 billion, the lowest in about 10 sessions. The total notional trading volume reported on Clearing Corp. of India Ltd.'s derivatives trading platform was INR 373.85 billion, slightly higher than INR 304.40 billion Tuesday.

"Till yesterday (Tuesday), US rates were pricing in about 7 bps of a hike in July," a dealer at a corporation said. "Today that has risen to 9-10 bps. Positioning is light and naturally people will exit whatever received positions they had." Several domestic traders had taken excess received positions in swaps last week, especially when the five-year swap rate rose above the yield of the benchmark five-year bond, dealers said.

OUTLOOK

Thursday, swap rates are seen tracking US Treasury yields after the key interest rate decision by the US FOMC. Traders will also track the movement in government bond yields and near-month Brent crude oil price, besides developments in West Asia.

Traders also await the decision of the RBI's Monetary Policy Committee meeting next week, with traders expecting status quo on the repo rate, though commentary could tilt towards prioritising inflation control with economic growth still seen to be strong. The RBI is unlikely to alter its forecasts on growth and inflation, with the central bank likely to flag uncertainty on the geopolitical and crop harvest front, dealers said.

Receiving by foreign and private-sector banks hedging foreign currency non-resident (bank) deposits 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 95.6475

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

Edited by Rajeev Pai

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