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Informist, Tuesday, Jun. 16, 2026

 

By Cassandra Carvalho

 

MUMBAI – Most overnight indexed swap rates ended steady Tuesday in thin trade, amid a lack of fresh triggers and no significant flows, dealers said. Traders await the decision of the US Federal Open Market Committee Wednesday, and the signing of the US-Iran peace deal Friday, for further direction on interest rates, they said. 

 

The one-year swap rate ended at 5.89% Tuesday, the lowest in over a month and down from 5.93% Monday. The five-year swap rate ended at 6.31% Tuesday from 6.32% Monday. The total notional trading volume reported on Clearing Corp. of India Ltd.'s derivatives trading platform was INR 370.45 billion, lower than INR 473.75 billion on Monday. 

 

"Nothing is happening, its a very dull day," a dealer at a private-sector bank said. "All the good news has been baked into the price. Now people will wait for actual flows, whoever had to take a position has taken it." Traders are also monitoring foreign inflows from banks' schemes to lure dollar-denominated foreign currency non-resident bank deposits after the RBI rolled out a concessional swap facility on the same. 

 

The one-year OIS rate and swaps of similar tenures were down more as traders bet on the OIS rate curve steepening, as they unwound bets of rate hikes in the near-term due to an Iran-US peace deal, they said. However, while most traders chose to pay the five-year OIS swap rate and receive short-term rates, it too has scope to fall more to about 6.20%, they said. Dollar-rupee forward premiums have also eased, putting a downward pressure on swaps, they said. 

 

"We think the 1x5 (OIS spread) optimum level should be 38 bps, because that will mean the war premium has gone out," a dealer at a state-owned bank said. "It (OIS) will open lower tomorrow (Wednesday) as well, can fall by about 6 bps more." The spread of the five-year swap over its one-year counterpart was 42 bps Tuesday. 

 

Corporate bond issuers have refrained from receiving swap rates to hedge their issuances as rates as seen inevitably moving higher, dealers said. Meanwhile, some traders also paid fixed rate contracts to hedge purchases in state bonds and underwriting of bond forward rate agreements, dealers said.

 

OUTLOOK

Swap rates are seen trending lower Wednesday, though caution ahead of the FOMC decision may limit activity, dealers said. Swaps could also fall more if the peace deal between the US and Iran continues without further issue until the official signing scheduled for Friday. The one-year OIS rate could fall to 5.80% while the five-year swap rate is seen falling to 6.20% if the peace deal continues as planned and the Strait of Hormuz is reopened, dealers said.

 

Traders will also track the movement of US Treasury yields ahead of the FOMC decision late Wednesday, which will be the first meeting under newly appointed Chair Kevin Warsh, where a status quo on interest rates is expected, the commentary from the new chair on inflation and employment is being keenly watched to chart US rate expectations. Some traders expect Warsh to be "dovish" due to political pressure on the Fed to ease borrowing costs.

 

A likely liquidity boost due to the RBI's measures to shore up capital is seen adding to fall in short-term rates, dealers said. Most traders now do not expect a repo rate hike in August, though concerns over deficient rainfall and higher food prices remain. The MPC may hike the repo rate in October, but a rate-hike in the near-term seems unlikely with the peace deal coming to fruition and May's CPI inflation lower than expected, they said. 

 

Traders will also track any development on the inclusion of Indian government bonds on Bloomberg Index Services' flagship Global Aggregate Index after the RBI and the Centre unveiled a slew of measures to improve foreign inflows earlier this month, dealers said. Government sources said that such measures were intended to secure the inclusion. Bloomberg, which deferred its decision on the inclusion of Indian bonds in January, said it plans to provide the next update on the potential inclusion by mid-2026. The review could be as soon as next week, dealers said. The movement of the rupee could also lend cues. The one-year swap rate is seen at 5.80-6.15% and the five-year at 6.20-6.42%.

 

	At 1700 IST	MONDAY
1-year OIS	5.89%	5.93%
2-year OIS	6.05%	6.08%
5-year OIS	6.31%	6.32%
2-year MIFOR	6.62%	6.64%
5-year MIFOR	6.84%	6.85%

 

End

 

US$1 = INR 94.56

 

Edited by Deepshikha Bhardwaj

 

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