Lean season is present in almost all sectors barring healthcare and food Industry. Banks too have to go through lean season where lending slows down but deposit continues to grow. First quarter and some extended part thereon is the lean season for banks when corporates borrow less. This indeed improves cash balance with banks and hence banks reduces their CD issuances significantly post March end. Then arises a situation when demand for funds is low which subsequently leads to fall in short term rates.  Below is the chart where one can understand the lean period effect highlighted by thick black bars.

Falling Short Term Rates

How do fund managers benefit from this seasonality?

Fixed Income Fund Managers by February end starts switching their portfolio from G-sec to short term papers . CD rates are high during Feb end and whole of March. They buy papers at high yields and sell the same in May-June at a lower yields benefiting from capital appreciation. No doubt there arises a risk of reinvestment for the fund managers but most of them start moving to G-sec/Long corporate papers as by April-May supply premium would have already been priced and rates should be on the verge of a fall on account of OMO expectation.

CD CP Return March April

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