Capital Markets

Report: Commercial Paper Takes High Dive

A measure of corporate short-term borrowing dropped more than 4 percent in a week—the biggest decrease since 2000, according to Bloomberg.
David KatzAugust 23, 2007

While the current plunge in commercial paper investments still seems mainly limited to companies hit by the subprime lending fiasco, figures culled by Bloomberg suggest that other corporations wanting to finance short-term expenses via that route may be affected too. Indeed, the amount of money invested in U.S. commercial paper outstanding had its biggest weekly percentage decrease since in seven years, the wire service reported on Thursday.

Citing the Federal Reserve, Bloomberg reported that as of Wednesday, the amount dropped 4.23 percent since Aug. 15, decreasing $90.2 billion to a seasonally adjusted $2.04 trillion. That percentage dive is the biggest since at least November 2000, the news service said.

The drop in outstanding commercial paper was reportedly driven by a 6.8 percent fall in asset-backed paper—often used to fund purchases of subprime mortgages—
which comprises about 50 percent of the commercial paper market.

Bloomberg also reported that the average yield on 30-day asset-backed paper rated A1 (the second-highest short-term Standard & Poor’s credit rating) has risen to 6.1 percent in the past week. That’s a 35 basis point rise, according to the news service.