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| MFs buy 1-yr CDs on inflows in liquid plus scheme |
| Newswire18 / Mumbai Jun 26, 2009, 00:44 IST |
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Mutual funds (MFs) stepped up purchases of one-year certificates of deposit (CDs) today due to inflows in their liquid plus schemes, dealers said.
Banks too were keen on issuing one-year CDs at lower rates to refinance the certificates of deposit that are maturing this month, dealers said. Today, banks placed CDs worth Rs 1,830 crore, sharply up from Rs 200 crore on Wednesday.
One-year CDs were placed around 9.50-10.50 per cent during the same period last year, while currently they are placed at just 5.50-6.00 per cent.
Market participants are of the view that the rates could rise slightly if the liquidity in the system reduces. “If the government increases its borrowing in the Budget then we could see the liquidity in the system reducing,” said a dealer with mutual fund.
Banks are raising funds through issuance of CDs to maintain their deposit base ahead of the first quarter-end of this financial year, dealers said.
However, issuances of commercial papers (Cps) fell today as companies have raised funds through CPs in the last two weeks, dealers said.
The rates remained unchanged today because demand and supply matched, dealers said.
Today, three-month CDs were quoted at 3.30-3.50 per cent, unchanged from Wednesday. Three-month commercial papers were quoted at 3.80-4.10 per cent, flat versus Wednesday.
Volumes continued to remain thin in the segment as investors preferred to invest in the primary market, dealers said. Today, mostly papers maturing up to July were dealt in the market.
“Mutual funds were selling papers in the secondary market and purchasing fresh issuances,” said a dealer with a mutual fund.
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