Mumbai, Sep 22 (TIWN) Rates on short-term instruments such as commercial papers, Certificate of deposit and treasury bills rose sharply in last few weeks after the liquidity in the banking system slipped into a deficit post remaining in huge surplus.

In last one week, yields on treasury bills maturing in 91 days rose 17 basis points, 182-day by 24 basis points and 364-day by 22 basis points.

Whereas, rates on commercial papers maturing in three-month of non-banking finance companies rose by 25-30 basis points to 6.50-6.65 per cent, and on papers issued by manufacturing companies rose 15-20 basis points to 6.30-6.40 per cent.

Today, the yields on these papers have been trading sharply higher than earlier levels. According to the CCIL TR F-TRAC platform, commercial papers of JM Financial Products Ltd and Motilal Oswal Finvest Ltd were trading at 8.15 per cent and 8.10 per cent, respectively.

"Very tight liquidity conditions, rate hike by US Federal Reserve, and subsequent expected rate hike by the RBI due to higher inflation, expected delay in announcing bond index inclusion are the key factors affecting the yields," said Venkatakrishnan Srinivasan, founder and managing partner at Rockfort Fincorp LLP, a Mumbai-based debt advisory firm.

The surplus liquidity in the banking system has tightened more than expected led by slower net government spending to offset the advance tax outflows and intermittent FX intervention despite the CRR related drawdown.