Tuesday, April 29, 2008

Commercial paper market modestly pulling back

The commercial paper (CP) market does appear to be modestly pulling back in the past few weeks, although it is still roughly in its recent range of $1.75 trillion to $1.90 trillion outstanding, . Nonfinancial CP has continued to rise lately, but financial and asset-backed CP have pulled back a bit. Not by a lot, and it may simply be temporarily retreating to the bottom of the recent range, but it is noticeable. Total CP outstanding was $1.79 trillion last week vs. $1.81 trillion the prior week.

Whether this modest pullack is temporary or a trend will be a bit more clear once we have another month of weekly data.

Actually, all three categories of CP did in fact rise last week but financial and asset-backed showed a decline after the seasonal adjustment was applied. After all of the turmoil of the past nine months and the dramatically different levels compared to a year ago, I am not very confident that anybody knows what seasonal adjustments make sense anymore.

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 1.91% to 3.28% range, giving businesses a fairly economical source of short-term funding for short-term business needs.

-- Jack Krupansky

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