Funds pump cash into CDs

Mutual funds On Tuesday stepped up investments in one-year certificates of deposit (CDs) as they received inflows in their fixed maturity plans (FMPs) and on expectations that short-term rates may fall further, dealers said.

Mutual funds had avoided purchasing short-term papers since last week due to outflows on corporate advance tax payments.

On Tuesday, banks placed around Rs 2,300 crore through CDs, while none was placed on Monday.

Mutual funds expect short-term rates to fall as the Reserve Bank of India (RBI) may cut interest rates by January.

The rates on CDs and commercial papers (CPs) have fallen by 100 basis points in the past two weeks after RBI cut the reverse repo rate and repo rate by 100 bps each.

Three-month CPs were quoted at 13-14 per cent On Tuesday, unchanged from Monday, while three-month CDs were quoted at 7.40-7.60 per cent compared with 7.20-7.30 per cent.

On Monday, Adlabs had placed Rs 10 crore of three-month commercial papers at 14 per cent.

CDs maturing in December were dealt at 5.75-6.00 per cent, unchanged from Monday. CDs maturing in March were quoted at 7.75-7.95 per cent.

Corporate bonds rise
Mutual funds continued purchasing corporate bond papers On Tuesday due to inflows in their income funds, dealers said.

Insurance companies and a few banks were also seen buying papers on expectation that rates would ease further, while primary dealers were selling papers to book profits.

Power Finance Corporation’s 10-year bonds were traded at 9.15-9.20 per cent On Tuesday compared with 9.05-9.15 per cent on Monday.

Mutual funds have been investing heavily in corporate bonds in the secondary market for more than two weeks as they have been receiving inflows in their income fund schemes, dealers said.

Corporate bond yields fell by 5 basis points On Tuesday tracking government securities. The benchmark 8.24 per cent, 2018 government paper ended at 5.9854 per cent compared with 6.1672 per cent on Monday.