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Informist, Friday, Sept. 25, 2026

 

By Janwee Prajapati

 

MUMBAI – Overnight indexed swap rates ended steady, retracting from the highs hit during the early trade following a rise in US Treasury yields, dealers said. Swap rates fell later in the session, as yields on the US and domestic bonds eased, they added. Brent crude oil prices, though little changed overnight, remained above the crucial $100 per barrel mark, which weighed on traders' sentiment, according to dealers.

 

Brent crude futures for November delivery were at $105.68 per barrel at 1700 IST, higher than $104.90 per barrel at the end of Indian market hours on Thursday. Brent crude staying above the psychologically crucial $100 per barrel level soured market sentiment. However, some traders received fixed rates as they were hopeful of a potential peace deal between the US and Iran, which is expected to bring down crude oil prices, dealers said. The yield on the 10-year benchmark US Treasury note was at 5.19%, up six basis points from 5.13% at the end of Indian trading hours Thursday.

 

"There was some paying in the morning, tracking a rally in US yields," a dealer at a private sector bank said. "But swap rates came down later due to a fall in US yields... People are also expecting a peace deal between the US and Iran because this time they are discussing things and both parties seem to want a ceasefire."

 

The one-year swap rate ended at 6.16% against 6.17% Thursday, and the five-year swap closed at 6.63% compared with 6.64% in the previous session. The one-year and five-year rates touched intraday highs of 6.18% and 6.68%, respectively, as traders paid fixed rates tracking the rise in US Treasury yields, dealers said. However, the five-year swap failed to break above the crucial 6.68% level as traders remained hopeful of a US-Iran peace deal, they said. At current levels, the one-year swap is pricing in a 100-basis-point rate hike in the current financial year by the Reserve Bank of India's Monetary Policy Committee, dealers said. Most traders expect the RBI's Monetary Policy Committee to hike the repo rate by 25 basis points in October. The next crucial level for the one-year swap is 6.20%, they said.

 

"We (the five-year swap rate) did touch 6.68% today, but then it rebounded... it did not break that level," a dealer at another private sector bank said. "If the five-year swap rate breaks 6.68%, we can see 6.80-6.90% which is the next crucial level."   

 

The early paying interest faded as domestic players received fixed rates tracking an ease in US Treasury yields and Brent crude oil prices, dealers said. A fall in bond yields following a slightly better-than-expected weekly gilt auction result also pulled swap rates down, dealers said.

 

Some traders hedged their bond positions in swaps and are now awaiting the Centre's borrowing calendar for Oct-Mar for further cues, expected Friday. Most market participants expect supply of shorter-tenure bonds to rise compared to Apr-Sep, which could push up swaps of similar maturities, dealers said. However, others expect supply to be slightly higher in long-term bonds after the government sold INR 1 trillion worth of gilts through open market operations.

 

Total notional trading volume on Clearing Corp. of India's derivatives trading platform was INR 513.87 billion Friday, down from INR 562.55 billion Thursday. Some traders squared off positions ahead of the RBI's MPC decision next week.

 

OUTLOOK

Swaps are not traded on Saturday. On Monday, swap rates are likely to open lower after the government said post-market hours that it would auction INR 7.86 trillion worth of gilts in Oct-Mar, aiming to cut FY27 gross gilt issuance to INR 16.00 trillion from INR 16.09 trillion. Some traders had expected the Oct-Mar borrowing to be around INR 8.20 trillion, while others had pegged it as low as INR 7.60 trillion. Swap rates will also continue to track overnight moves in crude oil prices and US Treasury yields.

 

Traders will focus on comments by RBI Governor Sanjay Malhotra, dealers said. As the US Fed began its rate hike cycle, the RBI's rate-setting panel is seen following suit with a 25-bps repo rate hike in October, dealers said. Traders also expect the RBI to introduce more measures to drain systemic liquidity, beyond the government bond sales it is conducting this month and variable rate reverse repo operations, they said. Some expect more open-market operations sales of INR 500 billion or INR 1 trillion. Traders will also assess the outcome of meetings the central bank is conducting this week on feedback from market participants ahead of the policy decision. The one-year swap rate is seen in the range of 5.95–6.25% and the five-year at 6.40–6.70%.

 

	At 1700 IST	THURSDAY
1-year OIS	6.16%	6.17%
2-year OIS	6.37%	6.38%
5-year OIS	6.63%	6.64%
2-year MIFOR	7.83%	7.82%
5-year MIFOR	7.83%	7.84%

 

End

 

US$1 = INR 95.81

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

 

Edited by Deepshikha Bhardwaj

 

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