Cash Management

Look Hard: Is Commercial Paper Reviving?

Fed report shows more shrinkage, but hint at a bottom.
Stephen TaubOctober 16, 2008

Federal Reserve Board numbers continue to show the commercial paper market shrinking. But there are some signs of a revival.

According to the latest Fed report, the amount of outstanding commercial paper shrank by $40.3 billion to a seasonally adjusted $1.51 trillion for the week ended Wednesday. The decline, however, was less steep than in the prior few weeks.

As recently as the summer of 2007, the amount of commercial paper outstanding exceeded $2.2 trillion, according to Reuters.

This week’s report, however, could wind up marking the bottom of the commercial paper market. Bloomberg News pointed out that rates for one-month commercial paper have dropped, and companies boosted sales of debt due in more than 21 days. Its interpretation: The squeeze that forced many businesses to roll-over short-term borrowings daily may be easing.

Indeed, yields on the highest-rated commercial paper placed by dealers and due in 30 days dropped 0.34 of a percentage point to 3.93 percent, according to Bloomberg.

What’s more, maturities are finally started to be extended. According to the wire service, on Wednesday companies issued $40.8 billion of commercial paper with a maturity of at least three weeks, or 18 percent, the most since Sept. 12, compared with less than 10 percent a week ago.

Last week, the Federal Reserve announced a program whereby it would purchase three-month unsecured and asset-backed commercial paper.