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Informist, Tuesday, Sept. 8, 2026

 

By Aaryan Khanna

 

NEW DELHI – Overnight indexed swap rates ended lower Tuesday because of corporate houses receiving fixed rates near the close of the session, dealers said. Consistently low overnight fixings also kept fresh paying activity limited despite a rise in crude oil prices and US Treasury yields, they said.

 

The one-year swap rate ended at 5.95%, down from 5.98% at Monday's close. The five-year swap rate ended at 6.43%, down from 6.46% Monday. Total notional trading volume on Clearing Corp. of India Ltd.'s derivatives trading platform rose from Monday's unusually low INR 277.45 billion to INR 384.35 billion.

 

Multiple non-banking financial companies were receiving fixed rates at levels they considered attractive after an early rise in OIS rates, with the one-year contract at 5.99% and the five-year contract at 6.50% at the day's highs. These NBFCs – one from the private-sector and one state-owned – were also looking to hedge past and upcoming bond issuances, dealers said.

 

"There was heavy corporate receiving towards the fag end of the day," a dealer at a foreign bank said. "Basically it looked like hedging activity and in a market with no volumes, it had a significant effect in dragging down the rates." 

 

OIS rates fell despite adverse global cues as offshore traders kept to the sidelines, dealers said. The Brent crude oil contract for delivery in November was at $98.62 per barrel at 1700 IST, up from $97.45 per barrel at 1700 IST Monday. The contract hit an over six-week high of $99.46 per barrel intraday, as Houthi attacks on Saudi Arabian oil facilities drove up the commodity's price.

 

The 10-year US Treasury also inched up to 4.80% Tuesday after an extended weekend, from 4.78?rlier, on fears of additional supply and rate increases in the world's largest economy. However, traders avoided large positions on paying OIS rates as the overnight Mumbai Interbank Outright Rate – the floating leg of the OIS contract – has been set close to the Standing Deposit Facility rate of 5.00% over the last few sessions rather than near the policy rate of 5.25%. India's banking system liquidity has surged to over INR 10 trillion since last week following robust inflows into foreign currency non-resident (banks) deposits, leading to a collapse of overnight money market rates.

 

Consequently, traders paying the one-year swap rate are effectively losing over 90 basis points on the notional traded volume daily to retain their bets, dealers said. While most traders are holding onto these positions on the view that the Reserve Bank of India would take measures to drain liquidity and prop up overnight rates, the central bank's lack of durable action over the past week is putting downward pressure on OIS rates, they said. 

 

"Offshore is consistently paid, but they are facing a daily loss due to the immense carry while having no mark-to-market gains," a dealer at a primary dealership said. "So it is a matter of patience and if they decide that nothing is happening in India to drive up rates, they will look for a quick exit if fixings (MIBOR) sustain like this until the next policy." Traders remain split on whether the Monetary Policy Committee would hike the repo rate at its next meeting in October, but near-term OIS rates continue to price in an increase to 5.50%, dealers said.

 

OUTLOOK

On Wednesday, swaps are expected to track overnight movements in crude oil and US Treasury yields, as well as any fresh developments in the US-Iran war. Traders will also track the systemic liquidity in the banking system and look for indications of liquidity-draining measures from the RBI.

 

Closer focus is on the US Federal Open Market Committee's meeting mid-month, with expectations that if the Fed opts for a rate hike in September, the RBI's rate-setting panel will follow suit in October, dealers said. Before that, attention will also be on India's CPI inflation data for August, which is seen nearing 5%, rising further above the central bank's 4% target.

 

As received bets linked to banks' inflows from foreign currency non-resident (banks) deposits thin out closer to the end of the deadline Friday to swap dollars under this scheme, swap rates may no longer be capped, dealers said. However, bets that the swap rate curve will flatten will take time to play out as long as there is such a large surplus of liquidity in the banking system. The one-year swap rate is seen in the range of 5.82-6.10% and the five-year at 6.35-6.65%.

 

	At 1700 IST	MONDAY
1-year OIS	5.95%	5.98%
2-year OIS	6.14%	6.17%
5-year OIS	6.43%	6.46%
2-year MIFOR	7.20%	7.19%
5-year MIFOR	7.31%	7.29%

 

End

 

US$1 = INR 94.8175

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

 

Edited by Saji George Titus

 

 

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