Bloomberg News

Commercial Paper Snaps Longest Decline in a Decade, Fed Says

October 27, 2011

(Updates with strategist comments in fourth paragraph.)

Oct. 27 (Bloomberg) -- The market for U.S. commercial paper snapped the longest losing stretch in at least a decade as investors wagered European leaders would curb the debt crisis and bought short-term IOUs from foreign financial institutions, Federal Reserve data showed today.

The seasonally adjusted amount of commercial paper outstanding rose $11.8 billion to $961.1 billion in the week ended Oct. 26, the Federal Reserve said today on its website. That increase ended the longest streak of falls since at least December 2000, according to Fed data compiled by Bloomberg.

Commercial paper sold by non-U.S. financial institutions rose $6.8 billion to $185.8 billion, the biggest increase since May 25 and accelerating from a $1.9 billion rise last week.

Investors “are making a great leap of faith we will get this European situation resolved,” said Howard Simons, strategist with Bianco Research LLC in Chicago. “The word is Lehman will never happen again,” he said, referring to the failure of Lehman Brothers Holdings Inc. in September 2008, which brought the global financial system close to collapse. “They will not let these banks fail,” he said.

Following European leaders’ agreement to bolster lenders’ capital and boost the region’s rescue fund, “what we should see going forward is a larger increase in the financial issuance, both domestic and foreign,” Simons said.

The amount issued by U.S.-based banks fell for a sixth week, declining $12.5 billion to $266.2 billion, according to the Fed.

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

IOUs issued by non-financial companies rose $8.7 billion to $196.1 billion in the fourth weekly increase.

Commercial Paper Outstanding: FCPOTOTS <Index> HCP <GO> Commercial Paper Indexes: MMCV <GO> Fed Commercial Paper Data: FDCP <GO> Foreign Financial Commercial Paper: FCPOFFS <Index> HCP <GO> Domestic Financial Commercial Paper: FCPOFDS <Index> HCP <GO>

--Editors: Mitchell Martin, Pierre Paulden

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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