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Informist, Tuesday, Sept. 29, 2026

 

By Aaryan Khanna

 

NEW DELHI – Overnight indexed swap rates ended lower, tracking a sharp intraday fall in US Treasury yields and crude oil prices, dealers said. Some traders unwound paid positions at a profit after the sharp rise in OIS rates Monday, with domestic corporates and banks also returning to receive rates after staying on the sidelines Monday

 

The one-year swap rate ended at 6.19%, down from 6.24% Monday, and the five-year swap rate closed at 6.65%, lower than 6.72% in the previous session. Both benchmark contracts ended near the day's lows tracking the move in global triggers, after having closed at over four-month highs on Monday.

 

The 10-year US Treasury yield fell below 5.22% by 1700 IST from an intraday high of 5.26%, nearing levels last seen in June 2007. Meanwhile, Brent crude oil futures for November delivery slumped to near $104 per barrel by the end of Indian market hours from $106.87 per barrel at 0900 IST and down from a peak near $108 per barrel early in the day.

 

Both global triggers had moved sharply higher on signs that the war in West Asia would continue but fell persistently in the last two hours of trade to eventually pull down OIS rates, dealers said. Offshore traders paid fixed rates near the psychologically crucial 6.68% level on the five-year OIS for most of the day but their activity slowed in the second half of the day, they said. 

 

"We were expecting hedging activity to be prevalent today (Tuesday) after the rise in OIS rates Monday, but it doesn't look very significant," a dealer at a state-owned bank said. "Most of the movement seems to be tracking crude and US yields going up and down, even though there doesn't seem to be any material progress in the war (in West Asia)." 

 

OIS rates continue to price in a repo rate increase in October as part of a total hiking cycle of over 100 basis points, dealers said. Inflationary pressures will continue to make the case for the MPC to tighten monetary policy even though crude prices inched down Tuesday, they said. The RBI has projected quarterly CPI inflation to peak at 5.9% in the December quarter. Traders see a potential reading of up to 6.5% in Oct-Dec due to rising food prices and higher input costs being passed to consumer prices, topping the central bank's 2-6% target band. Even so, with CPI readings scheduled to fall to a little over 4% by the June quarter, most traders do not expect as sharp a rate hike as reflected by swap rates, dealers said. 

 

"Probably gilts are pricing it rightly, but the OIS curve is overshooting the realistic rate hike situation by at least 25 bps. We may see a maximum of 100 bps of rate hikes but not more than that," a dealer at a foreign bank said. "The problem is that unless the macros give some comfort, the market will always run ahead and it is very difficult to gauge when it can cool down."

 

A fall in dollar-rupee forward premiums also helped ease the upward pressure on OIS rates Tuesday. The one-month forward premium tumbled to 4.04% Tuesday from 4.69% Monday. The benchmark one-year premium will by nearly 20 bps to 3.32% Tuesday. On Monday, the higher forward premia made it more attractive to receive the dollar rate while paying fixed rates in rupee-denominated instruments such as OIS, dealers said.

 

OUTLOOK

On Wednesday, swap rates will take cues from movements in crude oil prices and US Treasury yields at the open and developments in the war in West Asia, dealers said. The next significant domestic rate trigger is the MPC's rate decision next week, they said. 

 

As the US Federal Reserve hiked interest rates in September, the RBI's rate-setting panel is seen following suit with a 25-bps repo rate hike next week, dealers said. Inflation readings are rising, while growth indicators show resilience, strengthening the case for repo rate increases, they said. A rate increase of 25 bps is already factored into OIS rates.

 

For direction, traders will focus on comments by RBI Governor Sanjay Malhotra after the policy decision. Traders expect the central bank to introduce more measures to drain systemic liquidity, beyond the government bond sales it conducted this month and variable rate reverse repo operations, they said. Some expect more open-market operations sales of up to INR 1 trillion in October, while others expect a hike in banks' cash reserve ratio. The one-year swap rate is seen in the range of 5.95–6.32% and the five-year at 6.40–6.85%.

 

	At 1700 IST	MONDAY
1-year OIS	6.19%	6.24%
2-year OIS	6.39%	6.45%
5-year OIS	6.65%	6.72%
2-year MIFOR	7.79%	7.92%
5-year MIFOR	7.79%	7.90%

 

End

 

US$1 = INR 95.98

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

 

Edited by Avishek Dutta

 

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