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Informist, Monday, Sept. 28, 2026

 

By Aaryan Khanna

 

NEW DELHI – Overnight indexed swap rates ended at a four-month high, tracking a sharp rise in Brent crude oil prices and US Treasury yields, dealers said. The surge in the one-month dollar-rupee forward premium by more than 100 basis points on Monday also pushed short-term swap rates higher, they said. Some traders hit stop-losses on their received fixed rate bets as the five-year OIS rate rose past the psychologically crucial 6.68% mark.

 

The one-year swap rate ended at 6.24%, up from 6.16% Friday, and the five-year swap rate closed at 6.72%, up from 6.63% in the previous session. Both benchmark contracts closed at their highest levels since May 22. Total notional trading volume on Clearing Corp. of India's derivatives trading platform was INR 386.45 billion Monday, down from INR 513.87 billion Friday.

 

The yield on the 10-year benchmark US Treasury note was at 5.22% at 1700 IST, up from 5.19% at the end of Indian trading hours Friday, after climbing to a fresh 19-year high of 5.24% intraday. Brent crude for November delivery hovered near $108 per barrel near the end of Indian market hours Monday, up around 2% from the previous close. Both crude and US yields moved higher as the war in West Asia continued with no certainty of an imminent truce between the US and Iran. Over the weekend, US President Donald Trump rejected a proposal from Tehran to end the fighting and open the vital Strait of Hormuz to shipping.

 

"We really can't help the movement now. It is all dependent on the global situation. It is not only offshore-driven now, domestic desks are also joining in," a dealer at a private-sector bank said. "Unlike last week, we have also not seen the presence of corporate or bank ALMs (asset-liability management desks) either, so the support level broke." Some dealers now expect the five-year swap rate to test the 6.85-6.90?nd, the highest levels hit in 2026-27 (Apr-Mar).

 

The five-year OIS rate did not top the key 6.68% level on Friday, largely because non-banking finance companies received fixed rates to hedge their bond issuances of similar maturities, dealers said. Though some hedging activity continued, dealers said corporate bond fundraising is likely to slow in the coming week until the Reserve Bank of India's Monetary Policy Committee decides on the policy repo rate on Oct. 7.

 

While issuers had wanted to pre-empt a rate hike, bond yields rose sharply Monday, which may disincentivise fundraising, dealers said. Moreover, banks were already deploying inflows from the RBI's special foreign currency non-resident (banks) deposits scheme across various instruments, including credit, retiring high-cost borrowing, and buying short-term gilts at the central bank's open market operation auctions. Consequently, the incentive to receive OIS rates was lower, as bonds offered higher returns, dealers said. 

 

The OIS curve has remained relatively steep despite rising odds of repo rate hikes in the coming months, with the one-year OIS rate pricing in nearly five rate hikes of 25 bps each over the next year. However, the overnight Mumbai Interbank Outright Rate – the floating leg of the OIS contract – has failed to sustain near the policy repo rate of 5.25% over the past few weeks due to a large rupee liquidity surplus in the banking system. On Monday, it was set at 5.14%.

 

Moreover, most traders see a less intense repo rate hiking cycle by the RBI, with quarterly CPI inflation until Apr-Jun projected to remain within the 2-6% target band. A small overshoot may only prompt repo rate increases of up to 6.00%, or 75 bps from current levels, making them attractive to receive fixed rates, dealers said. In a report Friday, Nomura said it did not see signs of inflation becoming broad-based and expected the MPC to raise the repo rate by 25 bps each in October and December to 5.75%, with no further move currently forecast. It called the pricing of 125 basis points of repo rate hikes "excessive".

 

Even so, swap rates maturing up to two years rose sharply Monday, largely due to higher short-term dollar-rupee forward premia. The higher forward premia made it more attractive to receive the dollar rate while paying fixed rates in rupee-denominated instruments such as OIS, dealers said. The one-year dollar-rupee forward premium hit a four-month high of 3.51% Monday. The one-month dollar-rupee forward premium rose over 100 basis points to end 4.69%, the highest since Apr. 7.

 

"There is a follow-on effect happening from the forwards market," a dealer at a foreign bank said. "While that has a hand today, there are a lot of negative factors playing out for India currently when it comes to crude, when it comes to US yields. So the momentum is on the paying side."

 

OUTLOOK

On Tuesday, swap rates will take cues from movements in crude oil prices and US Treasury yields at the open and developments in the war in West Asia, dealers said. The next significant domestic rate trigger is the MPC's rate decision next week, they 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. Inflation readings are rising, while growth indicators show resilience, strengthening the case for repo rate increases, they said. 

 

In addition, traders will focus on comments by RBI Governor Sanjay Malhotra after the policy decision. Traders expect the central bank to introduce more measures to drain systemic liquidity, beyond the government bond sales it conducted 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 in October, while others expect a hike in banks' cash reserve ratio. The one-year swap rate is seen in the range of 5.95–6.32% and the five-year at 6.40–6.85%.

 

	At 1700 IST	FRIDAY
1-year OIS	6.24%	6.16%
2-year OIS	6.45%	6.37%
5-year OIS	6.72%	6.63%
2-year MIFOR	7.92%	7.83%
5-year MIFOR	7.90%	7.83%

 

End

 

US$1 = INR 95.98

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

 

Edited by Saji George Titus

 

 

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