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Monday, January 26, 2009

WSJ on Fed's Commercial Paper Funding Facility

by Calculated Risk on 1/26/2009 11:31:00 PM

From the WSJ: Fed Program That Calmed Debt Market Faces a Test (hat tip Bond Girl)

About $230 billion of three-month debt that the Fed owns, in the form of commercial paper, is set to mature by Friday.

The questions are: Will companies like General Electric or GMAC, which issue this short-term debt to pay their bills and meet other near-term obligations, return to the open market rather than roll over their debt with the central bank, which costs a lot more? Can the still-fragile market absorb so much three-month debt in a single week without sending interest rates much higher? And is the Fed winding down this key program?
As of this past Thursday, the Fed held $350 billion of paper in the facility. That is close to 21% of the $1.7 trillion market.
This will be an interesting test to see if the Fed can shrink their balance sheet a little more.