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Informist, Monday, Aug. 3, 2026

 

By Cassandra Carvalho

 

MUMBAI – Overnight indexed swap rates ended lower Monday, tracking a fall in Brent crude oil prices and on the back of healthy foreign inflows through measures announced by the Reserve Bank of India to shore up capital, dealers said. Some traders paid fixed-rate contracts to hedge their bond purchases, they said.

 

The one-year swap rate closed at 5.88%, down from 5.92% Friday. The five-year swap rate ended at 6.37%, down from 6.41% Friday. Brent crude oil futures for delivery in October fell to $83.66 per barrel at 1700 IST, similar to $83.57 at 0900 IST—-though volatile during swap market hours-—and down from $90.19 at the end of market hours Friday. The yield on the 10-year US Treasury note was 4.68% at 1700 IST, little changed from the same time Friday, but down from over-six-month high of 4.75% hit over the weekend.

"There is receiving because of crude oil and tracking the 5-year G-sec," a dealer at a state-owned bank said. "Crude has come down to near $80 (per barrel) from $90 so in spite of everything else, the global trigger is the most-tracked."

 

Swap rates opened lower tracking a fall in Brent crude oil prices after US President Donald Trump over the weekend called off further strikes by the US on Iran. The fall in swap rates was accompanied by a slight fall in short-term government bond yields, which is despite an expected rise in yields after Bloomberg Index Services post market hours Friday, against expectations, deferred the inclusion of Indian sovereign bonds in its $70-trillion Global Aggregate Index. Amid healthy foreign inflows through foreign currency non-resident bank deposits, traders deployed these funds by purchasing gilts or receiving fixed rate contracts in swaps, dealers said.

 

Both the bond yield and swap rate curves are seen steepening, making it lucrative to buy the five-year benchmark 6.36%, 2031 bond and hedge the purchase by paying fixed rates in the five-year swap rate, dealers said. Banks have received inflows worth $36.73 billion through the RBI's concessional swap facility on such deposits till Friday from Jun. 8, latest data released by the RBI Saturday showed, while data released by the finance ministry Monday showed banks' outstanding FCNR(B) deposits rose by $28 billion between Jun. 5 and Thursday. This suggests a roll-over or re-booking of about $9 billion of these deposits, dealers said. Despite the re-booked amount, the pace of inflows is healthy and on track to beat estimates of $40 billion to $50 billion, dealers said.  

 

"The FCNR flows will put a cap on a rise in rates till September only but that's also getting priced in," a dealer at another state-owned bank said. "The number of positives (to pull down swaps) is reducing, one-year is still pricing in about 68 bps of hikes."

 

Offshore traders continued to pay fixed-rate contracts, dealers said, while mutual funds were receiving short-term swaps. However, the one-year swap rate is still roughly pricing three rate hikes in the repo rate within twelve months. Traders expect that the downward trajectory of swap rates is unlikely to sustain, with the maximum fall in the five-year swap rate seen to around 6.20%, and only if Brent crude oil prices ease to about $75 per barrel.

 

OUTLOOK

On Tuesday, swap rates will track the likelihood of any negotiations between the US, Iran and Gulf nations and its impact on crude oil prices, even though Iran reportedly denied ongoing talks with the US. Swaps will also track surplus liquidity in the banking system and the RBI's steps to manage this liquidity. The overnight Mumbai Interbank Outright Rate was set at 5.14% Monday, the lowest in six sessions. Traders expect the RBI to conduct variable rate reverse repo operations since systemic liquidity is likely to remain ample for the next couple of weeks. 

 

Traders have also begun taking positions before the outcome of the RBI's Monetary Policy Committee decision Wednesday. Traders largely expect the policy outcome to be a "non-event", with the MPC seen standing pat on the repo rate and policy stance. Most traders also expect the central bank to keep its inflation and growth forecasts unchanged. The commentary of the rate-setting panel could turn slightly restrictive, dealers said. 

 

Receiving by banks hedging foreign currency non-resident bank deposits may cap a rise in swap rates to an extent. The movement of the rupee and overnight borrowing rates will also lend cues. The one-year swap rate is seen in the range of 5.75-6.15% and the five-year at 6.25-6.50%.

 

	At 1700 IST	FRIDAY
1-year OIS	5.88%	5.92%
2-year OIS	6.07%	6.12%
5-year OIS	6.37%	6.41%
2-year MIFOR	6.95%	6.98%
5-year MIFOR	7.13%	7.17%

 

End

 

US$1 = INR 95.3375

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

 

Edited by Deepshikha Bhardwaj

 

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