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Informist, Thursday, Jul. 30, 2026

 

By Cassandra Carvalho

 

MUMBAI – Overnight indexed swap rates ended Thursday on a mixed note with the swap rate curve steepening slightly tracking the movement of US Treasury yields after the outcome of the US Federal Open Market Committee meeting, dealers said. Short-term rates priced out some expectations of a rate hike by the Reserve Bank of India's Monetary Policy Committee next week, they said, after the Fed held rates steady Wednesday. However, with lack of forward guidance by the Fed and no rate hike by the committee in spite of three dissents, long-term rates began to price in fears of inflation rising, they said. Albeit, swap rates reversed an early rise due to an intraday fall in Brent crude oil prices, they said. 

 

The one-year swap rate closed at 5.92% from 5.93% Wednesday and off the day's high of 5.97%. The five-year swap rate ended at 6.42%, against 6.40% Wednesday and off the day's high of 6.49%. Brent crude oil futures for delivery in October fell to $87.30 per barrel at 1700 IST from a day's high of $89.28, but higher than $85.56 at the end of market hours Wednesday. The yield on the 10-year US Treasury note was 4.69% at 1700 IST, inching lower from 4.70% at 0900 IST, and up from 4.63% at 1700 IST Wednesday.

 

US Federal Reserve Chair did not opt for commentary as hawkish as expected, and moreover, the rate-setting panel refrained from a rate hike despite three dissents, leading traders to question the credibility of the central bank of the world's largest economy amid political pressure for lower interest rates, dealers said. 

 

Domestically, traders are not pricing in a steep rate hike cycle in India. Offshore traders continued to pay fixed rate contracts tracking the rise in US Treasury yields. However, receiving from some domestic banks, especially those hedging inflows received through foreign currency non-resident bank deposits, capped a rise in rates. 

 

"He (RBI Governor Sanjay Malhotra) may be a little more hawkish than last time but there is a lesser case for a hike (next week) than there was in June," a dealer at private sector bank said. 

 

The longer-term interpretation of the Fed policy outcome and its translation in rate-hike pricing in the swaps market will be seen over a few sessions, with immediate attention on the movement of oil prices and the escalation of the West Asia war which is drawing more countries into the conflict, dealers said.  

 

"The rise in oil throughout the day had an effect on the rise in OIS, and it was similar when oil fell intraday, which led to quite a sharp receiving," a dealer at a state-owned bank said. The total notional trading volume reported on Clearing Corp. of India Ltd.'s derivatives trading platform was INR 504.60 billion, higher than INR 373.85 billion Wednesday.

 

OUTLOOK

Friday, swap rates are seen tracking Brent crude oil prices and US Treasury yields, dealers said. Traders will also track the movement in government bond yields. Traders now 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%.

 

	At 1700 IST	WEDNESDAY
1-year OIS	5.92%	5.93%
2-year OIS	6.12%	6.12%
5-year OIS	6.42%	6.40%
2-year MIFOR	6.97%	6.98%
5-year MIFOR	7.17%	7.17%

 

End

 

US$1 = INR 95.6800

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

 

Edited by Deepshikha Bhardwaj

 

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