Bloomberg News

Commercial Paper in U.S. Gains Most in a Year, Fed Data Show

January 12, 2012

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Jan. 12 (Bloomberg) -- The market for corporate borrowing via commercial paper expanded by the most in almost a year as investors bought short-term IOUs from industrial companies even as they avoided U.S. banks’ paper on concern Europe’s debt crisis may be getting worse.

The seasonally adjusted amount of U.S. commercial paper outstanding rose by $33.9 billion to $963 billion outstanding in the week ended yesterday, snapping five weeks of declines, the Federal Reserve said on its website. That’s the biggest increase since the period ended Jan. 26, 2011, according to Fed data compiled by Bloomberg.

Indications that the U.S. economy is growing are spurring investors to buy more commercial paper from nonfinancial companies, which issue these IOUs, typically maturing in 270 days or less, to fund everyday activities such as paying rent and salaries. Money-market funds, among the biggest buyers, are reluctant to purchase financial commercial paper as European leaders struggle to contain a fiscal crisis that threatens to infect bank balance sheets worldwide.

“Much of the weakness remains in financial paper,” said Raymond Stone, an economist at Stone & McCarthy Research Associates in Princeton, New Jersey. “The money funds, which are the natural buyers of commercial paper, are hesitant to have exposure to banks in general, but primarily European.”

The increase was led by non-financial paper, which rose $15.9 billion to $185.5 billion outstanding in the biggest gain since the period ended June 22, 2011. The amount issued by U.S.-based banks slid for a sixth week, decreasing by $100 million to $280.1 billion, according to the Fed. Commercial paper sold by non-U.S. financial institutions advanced $6.8 billion to $148.6 billion after five weeks of declines.

--Editors: Dennis Fitzgerald, Shannon D. Harrington

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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