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Short-Term Debt: CP, CD rates rise on low demand from fund houses

Wednesday, Mar 27, 2019

 

By Manish Suvarna

 

MUMBAI – Rates on short-term debt instruments such as certificates of deposit and commercial papers today rose 10 basis points, for the first time since Mar 7, because of low demand from fund houses, dealers said.

 

Today, rates on CDs maturing in three months were quoted in the range of 7.20-7.30%, against 7.10-7.20% on Tuesday.

 

Rates on commercial papers of non-banking finance companies were quoted at 7.65-7.75%, against 7.50-7.60%, and for manufacturing companies, it was in the range of 7.40-7.50% against 7.30-7.40%.

 

Dealers said that fund houses are holding back their investment as they are facing redemption pressure, which is a cyclical phenomenon during the end of a financial year.

 

The rise in rates was also attributed to the firm issuances of papers amid low demand.

 

Today, issuances of certificates of deposits rose for the third consecutive session primarily due to large deals by Canara Bank and Oriental Bank of Commerce, who raised 20 bln rupees and 10 bln rupees, respectively.

 

Since last three sessions, Oriental Bank of Commerce consecutively raised over 10 bln rupees through CDs. The fundraising by banks today was slightly higher than 30.75 bln rupees on Tuesday.

 

Dealers said issuances of CDs was likely to fall in coming days on expectation that liquidity will improve and deficit will narrow after the infusion of 345.61 bln rupees in the banking system through the Reserve Bank of India's dollar/rupee buy/sell swap of $5 bln for a period of three years.

 

Apart from this, liquidity will also improve after the month-end spending by the government on account of salaries and pensions.

 

The expected fall in supply of papers will also impact rates as it may hover on the lower side, dealers said.

 

Issuances of CPs fell to 30 bln rupees, as against 62.50 bln rupees on Tuesday.

 

–Primary market

* Reliance Industries, L&T Finance and Cholamandalam Investment & Finance Co raised funds through CPs today

* Canara Bank, Oriental Bank of Commerce and Andhra Bank raised funds through CDs today

 

–Secondary market

* Vijaya Bank's CD maturing on Jun 24 was dealt 11 times at a weighted average yield of 7.2570%

* National Bank for Agriculture and Rural Development's CP maturing on Thursday was dealt nine times at a weighted average yield of 6.3759%

 

Following was the volume at 1725 IST in the secondary market for short-term debt, in bln rupees, as detailed by the Clearing Corp of India's F-TRAC platform:

 

Certificates of DepositCommercial Papers
TodayPreviousTodayPrevious
107.5467.90108.5682.51

 

End

 

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

 

NOTE: Details of the deals have been received from market sources

 

Edited by Ramya J.S. D'Rozario

 

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