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Informist, Tuesday, Jul. 7, 2026

 

By Aaryan Khanna

 

NEW DELHI – Overnight indexed swap rates ended little changed in a session with competing triggers, dealers said. Traders hit stop-losses on their paid fixed rate positions after the five-year swap rate fell below its 200-day moving average of 6.14%, pulling down the benchmark swap rate, dealers said. A rise in US Treasury yields limited the fall and the two-way move pushed trade volumes in the five-year swap contract to a record high. 

 

The one-year swap rate closed at 5.73%, flat against Monday and matching a four-month closing low. The five-year swap rate ended at 6.12%, down from 6.13% Monday, hitting a fresh closing low from early March.

 

The total notional trading volume reported on Clearing Corp. of India Ltd.'s derivatives trading platform was INR 491.85 billion, against INR 422.15 billion Friday. The volume in the five-year contract alone more than doubled from the previous day to INR 247.95 billion.

 

The five-year OIS rate fell to the day's low of 6.10% in the first half of the day's session after the contract ended below the 200-day moving average Monday. A domestic corporate entity was likely receiving fixed rates in heavy volumes, which pulled down the swap rate since Monday, dealers said. Traders also bet on the five-year swap rate falling to as low as 6.00%, a level last seen before the war in West Asia began at the end of February. This sustained activity triggered stop-losses for those who had paid fixed rates on the view that the crucial 6.14% mark would not break, dealers said.

 

"The market is placing bets on OIS rates following bond yields (going) lower, we have seen movement there in the last few days but not in OIS," a dealer at a private-sector bank said. "The market is moving on a momentum trade rather than tracking rates. I think it will be difficult to fall below 6.07% now until something changes." Traders pegged the next technical support for the five-year OIS rate at 6.06%, with a breach of that level likely to send the swap rate tumbling to as low of 5.99%.

 

An intraday rise in the 10-year US Treasury yield and crude oil prices also pulled swap rates up from lows. The yield on the 10-year benchmark US Treasury note was 4.50% at 1700 IST, up from 4.46% at the same time Monday. The Brent crude contract for September was at $72.65 per barrel at 1700 IST, inching above $73 during the session and up from $71.98 at the end of gilt market hours Monday.

 

Traders said the near-term view on domestic interest rates remained sanguine and the market continued to reflect a low-to-none chance of a repo rate hike at the next two meetings of the Reserve Bank of India's Monetary Policy Committee in August and October. The scope for short-term OIS rates to fall is far more limited than for the five-year OIS due to the trading momentum, dealers said. Fundametally, traders are unlikely to price out the risk of a repo rate hike coming in the next 12 months, they said.

 

"I still believe the August policy is a live one, if the RBI's FX steps do not immediately bring in flows," a dealer at a primary dealershop said, signalling his view on a repo rate hike as soon as next month. The RBI had in June introduced several measures to attract foreign capital.

 

OUTLOOK

Wednesday, swap rates are seen tracking the movement of US Treasury yields and crude oil prices overnight. Offshore cues are in focus due to the lack of scheduled domestic rate triggers until next week's CPI data release, dealers said. Deficient rainfall and higher food prices are expected to push up retail inflation in the coming months while the RBI is likely to drain systemic liquidity ahead of a likely rate hike cycle, dealers said. However, no rate hike is expected until December after assessing recent commentary from RBI officials, they added.

 

Traders await Bloomberg's decision on the inclusion of gilts in its flagship index, with most traders betting on an inclusion. Traders also expect overnight rates to ease due to a liquidity boost from inflows into foreign-currency non-resident bank deposits.

 

The movement of the rupee could also lend cues. The one-year swap rate is seen in the range of 5.60-5.90% and the five-year at 6.05-6.23%. 

 

	At 1700 IST	MONDAY
1-year OIS	5.73%	5.73%
2-year OIS	5.87%	5.88%
5-year OIS	6.12%	6.13%
2-year MIFOR	6.68%	6.74%
5-year MIFOR	6.90%	6.97%

 

End

 

US$1 = INR 94.96

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

 

Edited by Rajeev Pai

 

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