Bloomberg News

Commercial Paper Market Falls Below $1 Trillion, Fed Says

October 06, 2011

(Updates with Raymond Stone comment in fourth paragraph.)

Oct. 6 (Bloomberg) -- The market for corporate borrowing through short-term IOUs fell below $1 trillion for the first time since Feb. 2 as investors cut holdings of bank debt on mounting concern Europe’s fiscal crisis is spreading.

The seasonally adjusted amount of U.S. commercial paper outstanding dropped by $22.2 billion to $985.4 billion in the week ended Oct. 5, the 12th consecutive decrease, the Federal Reserve said today on its website. It’s the longest stretch of declines since the period ended Jan. 19 and the lowest level since the market touched $988.3 billion Jan. 26, according to Fed data compiled by Bloomberg.

A drop in short-borrowing by banks led the decline, as investors shunned riskier assets potentially affected by the European debt crisis. Commercial paper sold by non-U.S. financial institutions fell $11.5 billion, the fourth weekly decline, while the amount issued by banks based in the U.S. decreased $12.6 billion, according to the Fed.

The decline was “mostly due to financial CP, especially foreign,” said Raymond Stone, who tracks U.S. money markets as managing director at Stone & McCarthy Research Associates in Princeton, New Jersey. “U.S. money market funds don’t want this paper,” he said in an e-mail.

Speculation that Spain and Italy may be forced to follow Greece, Ireland and Portugal in seeking international bailouts has roiled global markets, as investors grow concerned that a recession would erode creditworthiness of short-term debentures of banks and companies.

Corporations sell commercial paper to fund everyday activities such as paying rent and salaries.

--Editors: Sharon L. Lynch, Mitchell Martin.

To contact the reporter on this story: John Parry in New York at jparry5@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net


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