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Informist, Thursday, Aug. 6, 2026

 

By Cassandra Carvalho

 

MUMBAI – Overnight indexed swap rates closed largely steady Thursday, inching higher near the end of trade due to an intraday rise in Brent crude oil prices, dealers said. Short-term rates also moved higher, tracking a rise in the overnight Mumbai Interbank Outright Rate after the Reserve Bank of India conducted its first variable rate reverse repo auction Thursday since Apr. 17, dealers said. Moreover, strong technical levels across tenures deterred the likelihood of a further fall in swaps immediately, unless oil prices fell further, dealers said.

 

The one-year swap rate closed at 5.77%, inching up from 5.76% Wednesday. The five-year swap rate settled at 6.27%, a tad up from 6.25% the previous session. The total notional trading volume reported on Clearing Corp. of India Ltd.'s derivatives trading platform was INR 355.05 billion, sharply lower than INR 969.20 billion Wednesday.

 

"We had taken paid positions, but we haven't squared them off yet. We were expecting a sell-off (rise in rates) today (Thursday), but it seems like market is looking for direction, maybe there's a chance of heading lower," a dealer at a private sector bank said. 

 

The overnight MIBOR was set at 5.24% Thursday, up from 5.09% the previous day but still lower than the repo rate. Overnight rates rose closer to the repo from the Standing Deposit Facility rate after the RBI conducted a VRRR for INR 1.5 trillion. Brent crude oil futures for delivery in October was $80.30 per barrel at 1700 IST, from $79.55 at 0900 IST, and little changed overnight from $80.46 at 1700 IST the previous session. The yield on the 10-year US Treasury note was 4.64% at 1700 IST, inching higher from 4.62% at 0900 IST.

 

However, a 200-day moving average on the five-year OIS at about 6.21-6.22% limited a fall in swaps, with the five-year swap hitting a day's low of 6.2150?fore rising again. Similarly, traders do not see the one-year swap sustaining a fall below 5.75%. It hit the day's low of 5.74% Thursday. Some traders expect the receiving from domestic banks which are hedging their FCNR(B) deposits to reduce going forward, with inflows from these deposits likely to be channelled into reducing liabilities and boosting loan books, they said.  

 

Offshore funds were largely absent from trade Thursday, dealers said, leading to lower trade volumes. "I didn't see any flows today (Thursday), but some hedge funds may be receiving. Models (model offshore funds) have not turned yet, they're still on pay," a dealer at another private sector bank said. 

 

OUTLOOK

On Friday, swap rates are seen little changed unless crude oil prices shift significantly overnight. Several traders are shifting to paid bets with swaps unlikely to ease with elevated US Treasury yields, even as commentary by the Reserve Bank of India indicates no urgency to opt for a rate hike domestically, dealers said. Banks which were receiving fixed rates due to FCNR(B) deposits may reduce the pace of receiving, they said. However, foreign banks are still seen receiving fixed rates due to foreign inflows through these deposits, dealers said. Some fund-raisers could receive rates to hedge their bond issuances if swap rates rise, dealers said.

 

The view on the swap rate curve is still seen mixed, with expectations of both steepening or flattening. Due to hefty inflows through foreign currency non-resident bank deposits, the shorter-end of the swap rate curve could be anchored due to the liquidity boost, while some traders may receive the longer-term swaps to deploy the flows. The movement of the rupee and overnight borrowing rates will also lend cues. The one-year swap rate is seen in the range of 5.65-6.10% and the five-year at 6.07-6.40%.

 

	At 1700 IST	WEDNESDAY
1-year OIS	5.78%	5.76%
2-year OIS	5.95%	5.94%
5-year OIS	6.26%	6.25%
2-year MIFOR	6.86%	6.84%
5-year MIFOR	7.04%	7.03%

 

End

 

US$1 = INR 95.2200

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

 

Edited by Deepshikha Bhardwaj

 

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