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Informist, Tuesday, Aug. 18, 2026

 

By Aaryan Khanna

 

NEW DELHI – Overnight indexed swap rates ended higher Tuesday, tracking a rise in Brent crude futures to over $90 a barrel and the 10-year US Treasury yield to its highest level in 19 months. The one-year swap rate began reflecting a small chance of a repo rate increase at the next meeting of the Reserve Bank of India's Monetary Policy Committee in October, dealers said.

 

The one-year swap rate closed at 5.83%, up from 5.79% Monday. The five-year swap rate settled at 6.42%, rising from 6.34% Monday, closing at its highest level since Jul. 30. The total notional trading volume on Clearing Corp. of India Ltd.'s derivatives trading platform surged to INR 1.02 trillion Tuesday from INR 604.65 billion Monday, the highest in nearly a month. 

 

Offshore traders unwound their received fixed rate bets as the war in West Asia continued with signs of tensions between the US and Iran once again, with the activity concentrated in the five-year swap rate, dealers said. The benchmark contract's trade volume was its highest since Jul. 27. Brent crude oil futures for October delivery hit an over-two-week high and neared $92 per barrel in the first half of the session, before cooling slightly to near $91 a barrel by the end of Indian market hours. At 1700 IST Monday, the contract was at $89.08 per barrel. Meanwhile, the yield on the 10-year US Treasury note climbed to 4.75% at 1700 IST Tuesday from 4.69% the previous day, hitting its highest level since January 2025.

 

"Since there are no flows after August, the trading strategy in swaps has to change," a dealer at a primary dealership said, referring to the Reserve Bank of India's curtailed special scheme for foreign currency non-resident (banks) deposits. "There is no longer the same level of confidence to receive at every level and when something happens globally, the market has to react."

 

OIS rates briefly retreated from the day's high, with the one-year OIS rate dipping below 5.80% and the five-year OIS rate slipping below 6.40%. A large offshore entity received fixed rates across tenures in a large quantum, which caused the fall, the dealer quoted above said. Some traders also took profits on their paid fixed-rate positions after the nearly 20 basis-point rise in the five-year OIS rate in the past two sessions. However, adverse offshore triggers and widespread expectations that India's swap rates were below their fair value due to FCNR(B) inflows over the past month led to a further rise in the second half of trade, dealers said.

 

After the RBI announced a quicker-than-scheduled end on Aug. 31 to its special scheme for FCNR(B) deposits, traders fear there is a greater chance the RBI may tighten monetary policy at the rate-setting panel's next meeting in October. The one-year swap rate reflected a 20% chance of a 25 bp repo rate increase in October from the current 5.25%, dealers said. Although most recent comments from RBI Governor Sanjay Malhotra have suggested a high bar for rate hikes, high commodity prices globally make a case for the central bank draining liquidity and eventually raising interest rates at a time when growth is expected to be resilient. Earlier this montih, the central bank raised its projection for India's GDP growth in the financial year 2026-27 (Apr-Mar) by 10 bps to 6.7%.

 

"Rates in India are often a function of growth rather than inflation," a dealer at a foreign bank said. "Since growth is holding up, I have no doubt that the MPC has the room to gradually hike rates. The market is also not pricing in any drastic hikes, barely 50-75 bps (in the next year)."

 

OUTLOOK

Wednesday, swap rates are expected to take cues from movements in crude oil prices and US Treasury yields following developments relating to the war in West Asia overnight, dealers said. Brent crude for October delivery continued to trade above $91 per barrel after US President Donald Trump posted a graphic on social media calling Oman and the Strait of Hormuz US territory. The 10-year US Treasury yield continued to hover near 4.75%, a 19-month high.

 

Higher crude oil prices and US Treasury yields are a concern for traders as they may prompt the RBI's Monetary Policy Committee to hike rates. The movement of the rupee and overnight borrowing rates will also lend cues. With the special FCNR(B) scheme now ending Aug. 31 rather than Sept. 30, dealers do not expect onshore entities to heavily receive fixed rates even when they rise, with increased focus on overseas triggers.

 

Traders had expected foreign inflows to top $100 billion, with FCNR(B) deposits leading the inflows, and thus expected ample durable liquidity in the banking system. That expectation has been trimmed, dealers said. Several banks had plans in place to raise such deposits through leveraging in September.

 

Some traders are also looking ahead to the release of the minutes of the US and India monetary policy decisions. Bets on a hike in the US at the next policy meeting in September have faded over the past three weeks while traders continue to expect the RBI's rate-setting panel to remain sanguine on inflation. Both releases are due after market hours Wednesday. Wednesday, the one-year swap rate is seen in the range of 5.70-6.00% and the five-year at 6.30-6.52%.

 

	At 1700 IST	MONDAY
1-year OIS	5.83%	5.79%
2-year OIS	6.06%	6.00%
5-year OIS	6.42%	6.34%
2-year MIFOR	6.84%	6.78%
5-year MIFOR	7.02%	6.96%

 

End

 

US$1 = INR 95.68

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

 

Edited by Rajeev Pai

 

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