One-year CD issues up as banks expect rates to rise

Issuances of one-year certificates of deposit (CDs) rose today as banks were keen on raising funds for such tenure on views that interest rates might rise later, dealers said.

Abundance of liquidity in the banking system is evident from the fall in short-term rates in the last one month. One-year CDs were placed at 5.00-5.10 per cent today compared with 5.70-5.80 per cent last month.

The spread between a one-year CD and three-month CD is just 150 basis points. So banks find it more profitable to issue a one-year CD. However, mutual funds have limited their investments because of the fall in rates on short-term instruments, dealers said.