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Informist, Friday, Aug. 28, 2026

 

NEW DELHI – Overnight indexed swap rates inched up in low volumes on caution ahead of US Federal Reserve Chair Kevin Warsh's comments at the annual Jackson Hole Economic Policy Symposium after Indian market hours Friday, dealers said. A rise in Brent crude oil prices and US Treasury yields towards the end of trade also put pressure on swap rates, they said.

 

The one-year swap rate rose to 5.95% from 5.93% Thursday. The five-year swap rate ended at 6.44%, flat from the previous close. The total notional trading volume on Clearing Corp. of India Ltd.'s derivatives trading platform fell to INR 525.20 billion from INR 627.75 billion Thursday.

 

Warsh is expected to focus on bringing inflation back under control, preparing analysts and market participants for a federal funds rate hike from the current 3.50-3.75%. US core Personal Consumption Expenditures Price Index--the Fed's preferred inflation gauge--rose 3.7% on year in July against the target of 2%. The potential hardening in near-term US rates pushed up OIS rates maturing in up to two years near the close of trade, dealers said.

 

"The only money you make by paying at these levels is if the RBI starts hiking in October," a dealer at a primary dealership said. "Already, the market has priced in a terminal repo rate of 6.25% or 6.50%. The one-year (OIS) can still move up above 6.00% if the market starts expecting the rate hikes will be frontloaded."

 

However, if Warsh is soft on inflation and does not indicate an inclination to hike policy rates soon, short-term US yields may fall but long-term yields may rise as market participants questions the Fed's ability to tackle price pressures. Either way, the US Federal Open Market Committee's actions in the remainder of 2026 are seen as a key part of the Reserve Bank of India's Monetary Policy Committee decisions on whether to hike the repo rate of 5.25% in its two remaining meetings in October and December, dealers said. 

 

During the day, there was a lack of significant domestic cues on interest rates, though traders are worried about overnight Mumbai Interbank Outright Rate fixings rising above the repo rate, dealers said. Durable liquidity was at an over four-year high of INR 6.79 trillion as on Jul. 31 and is set to rise by the end of August due to foreign currency non-resident (banks) deposits. Should the central bank take steps to withdraw liquidity, the floating leg of the OIS contract may rise in the near term as the RBI sets the stage to hike rates, dealers said. 

 

A rise in US Treasury yields and crude oil prices also led to some paying pressure in swaps by the end of the day, though some domestic traders were unwinding their paid fixed rate bets in OIS contracts earlier, dealers said. Brent crude for November delivery rose to $88.15 per barrel at 1700 IST from $87.24 a barrel at the same time Thursday. The 10-year US yield was also up to 4.70% at the end of Indian market hours from 4.67% at the end of Thursday's session.

 

"There was good impetus to receive in the morning as US yields were not going anywhere, but the momentum turned when Brent started moving towards $90 (per barrel)," a dealer at a private-sector bank said. "But volumes were not there as people are looking at Warsh, they are looking at what RBI will do with liquidity, all of that is more important than the daily movement in crude." 

 

OUTLOOK

OIS rates are not traded Saturday. Monday, swap rates may take cues from the movement in US Treasury yields after Fed Chair Kevin Warsh's comments at the Jackson Hole symposium Friday, dealers said.

 

The market's assessment of Warsh comments on the US interest rate trajectory may lend direction to pricing of domestic rate hikes as well, which are widely reflected in OIS rates, dealers said. Other developments in the war in West Asia and their impact on crude oil prices may also lend direction to swap rates.

 

After the movement of overseas cues over the weekend, traders will focus on the release of India's GDP for the June quarter at 1600 IST Monday. India's GDP growth is likely to have slowed to a one-year low of 7.2% in Apr-Jun amid supply chain disruption and higher commodity prices stemming from the war in West Asia, according to an Informist Poll of 14 economists. Stronger-than-expected growth may increase bets on a repo rate hike in India as soon as October, while weakness in the economic data may push back rate-hike fears, dealers said.

 

The one-year swap rate continues to reflect around 100 basis points of repo rate hikes over the next 12 months, dealers said. Monday, the one-year swap rate is seen in the range of 5.82-6.04% and the five-year at 6.30-6.52%.

 

	At 1700 IST	THURSDAY
1-year OIS	5.95%	5.93%
2-year OIS	6.13%	6.11%
5-year OIS	6.44%	6.44%
2-year MIFOR	6.96%	6.94%
5-year MIFOR	7.09%	7.07%

 

End

 

US$1 = INR 95.37

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

 

Edited by Rajeev Pai

 

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