Banks continue to issue 1-yr CDs as rates fall

Issuances of one-year certificates of deposit (CDs) continued to rise as banks were keen on raising funds through these papers since the rates were lower, dealers said.

“Banks are also preferring to raise funds through one-year tenure as they expect the rates to rise by Sept-Oct as the liquidity may reduce,” said a dealer with a state-owned bank. The rates on one-year CDs fell by around 5-10 basis points because demand from mutual funds persists for such papers due to ample cash in their schemes.

“Mutual funds are either investing in one-year CDs or CDs maturing in March due to quarter-end,” said a dealer with a mutual fund. Fund managers preferred investing only in one-year tenure and avoided fresh purchase in three-month segment as the rates have fallen significantly this month.