- Wealth PMS (50L+)
Quick post about CD yields today. CDs are Certificates of Deposit, trade in the fixed income markets at sizes of a crore or more, and are issued by banks. Think of them as big fixed deposits. This data is for 29 March 2011.
(Legend – size of the circles is the total amount traded, X axis is days to maturity , and Y Axis is the yield in % to maturity, annualized)
CD trades are short term (<365 days) and are quoted as discount to maturity (there is no coupon interest rate). So you buy at 99.5 and get back Rs. 100 in N days.
Importantly, the last few days have been been seeing heavy and high yield trades at the low end of the game – look at the top left, there are a number of trades above 11.5% in the <20 day range.
People are willing to pay more (and therefore get less yield) from a 1 year CD, where yields are around 10%, than for a 15 day deposit where it’s 11%+. In general that would mean an inverted yield curve (basically lack of near term money, but people expect that in the long term, rates will come down). That situation has been a negative for equities the world over, and while it hasn’t yet shown up in bonds (where the yield curve is between the 1 years and the 20 year bonds) the CD market is showing signs of stress. It could be a March 31 effect, since strange things happen near the end of a financial year.Or it could be more deep and systemic – we’ll see in the first week of April. In my view it should ease up in April, but my view is not important.
To subscribe to new posts by email, once a day, delivered to your Inbox:
Also, do check out Capital Mind Premium , where we provide high
quality analysis on macro, fixed income and stocks. Also see our
portfolio which has given stellar returns in our year, trade by trade
as we progress. Take a 30-day trial: