Monday, April 07, 2008

Commercial paper market is roughly stabilized

After peaking in August and then correcting sharply through the remainder of 2007, the commercial paper (CP) market has roughly stabilized and is now drifting in a rage of roughly $1.75 trillion to $1.90 trillion outstanding, and was at $1.83 trillion last week. This includes asset-backed commercial paper (ABCP) at $786 billion, non-financial CP at $184 billion, and financial CP at $854 million. In particular, ABCP has been relatively stable for three months after hitting a bottom and then bouncing around the end of the year.

Commercial paper is an important source of short-term credit for businesses that have short-term funding needs. A significant fraction of CP is funded by money market funds. Commercial paper is commonly issued in durations of 1 day, 7 days, 15 days, 30 days, 60 days, and 90 days. It is considered fairly low risk, commanding interest rates in the 1.90% to 3.10% range, giving businesses a fairly economical source of short-term funding for short-term business needs.

-- Jack Krupansky

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