Discontinuous Yield Curves

I think that the equity markets have topped out and have cashed out all my equity and equity mutual fund holdings, and am thus sitting on a pile of cash, which I’m looking to invest in debt. Happened to check out the websites of a few banks where I hold accounts and what caught my eye was the discontinuity in the yield curves.

Here is HDFC Bank:

1 year 1 day – 1 year 15 days Below Rs.15 Lacs 6.00% 6.50% May 18, 2009
1 year 16 days Below Rs.15 Lacs 6.50% 7.00% August 03, 2009
1 year 17 days – 2 years Below Rs.15 Lacs 6.00% 6.50% May 18, 2009
2 years 1 day – 2 years 15 days Below Rs.15 Lacs 6.00% 6.50% May 18, 2009
2 years 16 days Below Rs.15 Lacs 7.00% 7.50% August 03, 2009
2 years 17 days – 3 years Below Rs.15 Lacs 6.00% 6.50% May 18, 2009
3 years 1 day – 5 years Below Rs.15 Lacs 6.00% 6.50% May 18, 2009

Notice the discontinuity? About how for a couple of randomly chosen dates the interest rates suddenly shoot up?

Similarly with ICICI Bank:

391 days to 589 days 6.25 6.25
590 days 6.25 6.25
591 days to less than 2 years 6.25 6.25
2 years to 789 days 7.00 7.00
790 days 7.00 7.00
791days to 989 days 7.00 7.00
990 days 7.25 7.25
991 days to less than 3 years 7.00 7.00

Again same story. On certain “magical” days, interest rates shoot up. The degree of increase in rates here is much less dramatic, though. Nevertheless this is extremely interesting, and I wonder why. I remember last year going to Karnataka Bank and asking for a 1 year deposit, and they asked me to make one for 400 days saying that I’ll get 0.5% per annum better for that.

This morning I went to State Bank of India and found that they don’t offer these special rates. I had a friend check at another nationalized bank and found that they too don’t offer special rates. Wonder why the private banks are offering it, though. Why it makes that big a difference to them that the deposit is for 990 days as against 991 or 889. Or is it some way to prevent early closure?

In other news, SBI is offering teaser rates for home and auto loans. Their ads have been there all over the airwaves for the last few weeks. They offer 8% for first year, 8.5% for second and third years and then what they call as “normal rates” after that. If SBI is getting into teaser rates, god only save Indian finance.

The National College Flyover

What will happen to the controversial National College Flyover when the Metro gets built? If I remember right, the proposed Metro goes from Lalbagh West Gate up Vani Vilas road, and is supposed to take a right turn on to K R Road at the National College circle. Surely there is no space on VV Road to for the metro and the flyover to exist side by side. They can’t take the metro underground there since the ground there has to bear the additional weight of the flyover.

So what will become of the flyover? Yet another example of the BBMP’s shortsightedness.

I don’t remember the forum (it might have been this blog, or its predecessor) but I had once mentioned as to how the National College Flyover was useless. And I had gotten shouted down by a bunch of people saying “go in the evening and see the number of vehicles on the flyover, and you’ll know it’s not useless”. I’ve gone there a few evenings after that (over the last 2-3 years) and watched the traffic in the evening, and still believe that it wasn’t necessary.

It wasn’t necessary because the traffic at the intersection isn’t enough of a reduction in petrol and time cost of going over the flyover to pay for the flyover in a reasonable number of years (if I remember my minor subjects right, this is the standard reasoning by transportation engineers). People on K R Road, and the traffic going towards Jain college from “north road” (the western part of VV Road) still have to spend an insane amount of time at the signal. People on VV Road have it easy but then they get stuck at the new signal that has been installed at the junction of VV Road and Shankar Mutt Road.

And to consider the amount of controversy that the flyover created when it was built. And the fact that it’s most likely going to get pulled down for the metro construction.