Cash Management

Commercial Paper Growth Ends after One-week Run

Led by financial issuers, paper outstanding as the largest contractions since mid-January. But some see positives: like a desire among some to lock...
Stephen TaubMarch 5, 2009

Total outstanding commercial paper fell $44.2 billion, in the week ended this past Wednesday, according to the Federal Reserve — the largest contraction since mid-January, and the eighth weekly decline in the past nine weeks.

Financial issuers accounted for about 80 percent of the total decline, to a level of $1.48 trillion. However, declines were also recorded by asset-backed and non-financial issuers. The total commercial paper market peaked at $2.2 trillion during the summer of 2007.

The steady contraction in the commercial paper — particularly in the past two months — could have some positive implications. Some market pros believe that the fall in paper could suggest that issuers are eschewing the short-term financing market to lock in longer-term financing in the bond market, which has a new-issue market that has bulged this year. In fact, if one believes that interest rates will rise over the next few years, it could be a prudent strategy — allowing one to lock in lower rates as a heavy increase in government spending takes place.

Financial firms can borrow under the Federal Deposit Insurance Corp. program at very low rates. And in fact, earlier this week several major companies said they raised money in the bond market in part to retire commercial paper. They include Eli Lilly, Coca-Cola and State Street.