Thursday, August 30, 2007

Commercial paper market still shrinking

by Bill McBride on 8/30/2007 01:28:00 PM

From Rex Nutting at MarketWatch: Commercial paper market still shrinking

Outstanding commercial paper in the U.S. financial system dropped sharply for a third straight week, indicating that a severe credit crunch has not eased in the market that supplies most large companies with operating funds.

Outstanding paper fell by $62.8 billion, or 3.1%, in the week ending Wednesday to $1.98 trillion, bringing the total decline in the past three weeks to $244 billion, or 11%, the Federal Reserve reported Wednesday.

Commercial paper consists of short-term promissory notes issued by corporations to raise cash for their operational needs. Most of the paper has maturities between 30 days and 270 days; anything longer than that requires a registration statement with the Securities and Exchange Commission.

An estimated $1 trillion in commercial paper will mature in the next few months. ...
The declines in outstanding paper have been felt strongest in the asset-backed portion of the market, which represents about half of all commercial paper. These securities are backed by assets such as credit-card receivables or mortgages. In the latest week, asset-backed paper fell by $59.4 billion, or 5.6%. In the past three weeks, this kind of paper has fallen by $184.9 billion, or 15.6%.