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Commercial Paper Market Decreases Most in Four Years, Fed Says

Thursday, 02 Jan 2014 11:49 AM

The market for corporate borrowing through short-term IOUs contracted by the most in four years as financial institutions’ issuance plunged.

The seasonally adjusted amount of U.S. commercial paper dropped $55.1 billion to $1.046 trillion outstanding in the week ended yesterday, the Federal Reserve said today on its website. That’s the biggest decline on a percentage basis since $94.2 billion in the period ended Jan. 6, 2010, and the lowest level since Oct. 16.

Money-market funds, among the biggest investors in the debt, may have reduced the amount of commercial paper from foreign banks they were holding at the end of the year in favor of assets perceived to be safer, such as repurchase agreements, which are backed by collateral, according to Howard Simons, strategist at Bianco Research LLC in Chicago.

“This suggests there were some year-end window-dressing factors involved, such as money-market funds wishing to show a greater percentage of assets in Treasury bills and repo agreements and less in unsecured foreign financial commercial paper,” Simons wrote in an e-mail.

Commercial paper sold by non-U.S. financial institutions fell $33.2 billion to $268.2 billion outstanding, the biggest drop since $44.7 billion in the period ended Jan. 5, 2011. The amount issued by U.S.-based banks decreased $21.3 billion to $285.1 billion, the biggest decline since $28.3 billion in the week ended July 10, according to the Fed.

Corporations sell commercial paper, typically maturing in 270 days or less, to fund everyday activities such as rent and salaries.

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The market for corporate borrowing through short-term IOUs contracted by the most in four years as financial institutions' issuance plunged.
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2014-49-02
Thursday, 02 Jan 2014 11:49 AM
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