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Informist, Monday, Sept. 21, 2026

 

By Janwee Prajapati

 

MUMBAI – Overnight indexed swap rates ended on a mixed note Monday. Traders received five-year swap rates ended lower as Brent crude oil future prices eased intraday along with a fall in US Treasury yields, dealers said. The fall in one-year swap rates was limited as traders likely paid fixed rates due to expectations of a rise in interest rates, dealers said. Trade volume remained subdued as traders refrained from building aggressive positions ahead of the Reserve Bank of India's Monetary Policy Meeting next month.

     

The one-year swap rate ended at 6.07%, unchanged from Friday as traders expect the rates to rise further on expectations of a repo rate hike, dealers said. The five-year swap rate, on the other hand, ended at 6.54%, down from 6.59% Friday. The one-year swap rate oscillated between 6.07% and 6.10%, whereas the five-year swap rates moved between 6.54% and 6.57%. Other tenure swap rates recorded very low volumes on Monday. Total notional trading volume on Clearing Corp. of India Ltd.'s derivatives trading platform was INR 405.35 billion Monday, up from INR 245.50 billion Friday. Most of the positions were likely only from domestic players, dealers said.

 

"The 56 (6.56%) level (in five-year OIS) was an important one and it broke that today (Monday)," a dealer at a private-sector bank said. "Now the next is 52 (6.52%), if we close below that, we will see some reversal (fall in swaps)."

 

Traders likely received the five-year fixed rates as they expected the escalation in West Asia to die out soon, which will likely ease the pressure on crude oil prices, dealers said. Brent crude oil futures for mid-month delivery were at $100.86 per barrel, down from the day's high of $104.90 per barrel and lower than $103.35 per barrel at the end of Indian trading hours Friday. Crude oil prices declined as investors focused on the prospect of a recovery in Saudi Arabian shipments despite ongoing attacks by Yemen's Houthis, which have heightened tensions in West Asia. Moreover, the yield on the 10-year US Treasury note fell to 4.95%, down from the day's high of 4.98% and below 4.97% at the end of Indian trading hours Friday.

 

"There were some receiving in the five-year rates near 6.57%...there was not much volume in other tenures," a dealer at another private-sector bank said. "One year did not move much, and I think it will be like this till policy." 

 

Traders refrained from aggressive bets as they awaited the RBI MPC's decision on the repo rate at its meeting in October, dealers said. Traders are divided on whether the rate-setting panel will hike rates at its October meeting, with some traders expecting such a hike at its December meeting, dealers said. Some traders expect at least two rate hikes in this calendar year starting in October, while others expect at least three repo rate hikes in the current financial year. The Federal Open Market Committee rate hike fuelled expectations of a rate hike by the RBI's MPC, with traders now expecting a hike at the October meeting, dealers said.

 

Some traders also expect the RBI to announce further measures to absorb liquidity from the banking system to ensure smooth transmission of a rate hike, dealers said. While some anticipate the sale of bonds through more open-market operations auctions, others expect a hike in the cash reserve ratio. Traders said the OMO auction result was in line with market expectations and had virtually no adverse impact on the 10-year benchmark bond yield, which is likely to strengthen the case for more such sales. However, announcements of further auctions are expected only after the RBI's MPC meeting, dealers said. The RBI's net liquidity absorbed--a proxy for the banking system liquidity surplus--was INR 6.2 trillion Friday, down from INR 6.94 trillion Thursday due to outflows of INR 500 billion for open market operations auction which was conducted Thursday.   

 

OUTLOOK

On Tuesday, swap rates are seen tracking overnight movements in crude oil prices and US Treasury yields, dealers said. Some traders expect oil prices to move downward in the near term if there is no escalation in the war in West Asia. Swaps will also track movement in US Treasury yields, with the US yield curve flattening after the FOMC hiked the fed funds target rate for the first time since 2023. Traders expect the OIS curve to flatten as well with long-term rates rising due to bets of interest rate hike, dealers said.

 

As the US Fed began its rate hike cycle, the RBI's rate-setting panel is seen following suit with a 25-bps repo rate hike in October, dealers said. Traders will focus on the comments from the RBI's governor, Sanjay Malhotra, dealers said. Traders also expect the RBI to introduce more measures to drain systemic liquidity, beyond the government bond sales it is conducting this month and variable rate reverse repo operations, they said. The one-year swap rate is seen in the range of 5.95–6.15% and the five-year at 6.40–6.70%.

 

	At 1700 IST	FRIDAY
1-year OIS	6.07%	6.07%
2-year OIS	6.29%	6.28%
5-year OIS	6.54%	6.59%
2-year MIFOR	7.61%	7.64%
5-year MIFOR	7.71%	7.73%

 

 

End

 

US$1 = INR 95.82

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

 

Edited by Deepshikha Bhardwaj

 

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