The market for corporate borrowing through commercial paper contracted for a third week led by a decline in issuance from financial institutions.
The seasonally adjusted amount of U.S. commercial paper dropped $12.4 billion to $997.4 billion outstanding in the week ended yesterday, the Federal Reserve said today on its website. That’s the lowest level since the market touched $968.6 billion in the period ended Nov. 14.
Companies are favoring bonds to obtain longer-term, stable funding with yields at about record lows, in preference to shorter-term financing via commercial paper.
“One need only look at the sharp increase that is occurring in longer-term corporate bond issuance to understand a major reason why commercial paper issuance has been weak,” Tony Crescenzi, a portfolio manager and strategist at Pacific Investment Management Co. in Newport Beach, California, wrote in an e-mail.
Company bond sales worldwide are approaching the fastest pace on record as central bank stimulus from the U.S. to Japan and Europe stokes demand and prompts economists to scale back forecasts for interest-rate increases.
“Extending the duration of liabilities remains a key goal of many companies, especially given today’s low borrowing rates,” Crescenzi said.
Commercial paper sold by non-U.S. financial institutions fell $4 billion to $234.4 billion outstanding, declining from the highest level since Feb. 6, while the amount issued by U.S.- based banks dropped for a third week, declining $3.4 billion to $288.1 billion, the least since the period ended Nov. 14, 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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