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Commercial paper continues its nosedive Print E-mail
Friday, 08 January 2010

By Matthew Quinn

Commercial paper outstanding plummeted $94 billion in the week ended Jan. 6, led by massive declines in the asset-backed market, according to Federal Reserve data released Thursday.

Total paper outstanding stood at $1.08 trillion on Wednesday, down nearly 41 percent from a year earlier. Bloomberg said the week-over-week decline was the biggest since it began tracking the data in 2000.

Asset-backed commercial paper outstanding fell a whopping $66 billion for the week, falling to $419 billion. The market's size is down 48 percent from a year ago.
At the market's peak in 2007, there was $1.2 trillion in ABCP outstanding, thanks largely to paper issued by special purpose vehicles. It's highly unlikely that segment of the market will ever comeback.

The overall market has contracted seven of the last 10 weeks after growing for 11 straight weeks between August and October. It's now back to its July levels after it had gone through 16 straight weeks of contraction.

Paper issued by financial companies was also down substantially for the week, falling almost $37 billion to $541 billion. The market is nearly 36 percent smaller than it was a year ago. Financial companies drastically cut their dependence on the commercial paper market after the collapse of Lehman Brothers, which made issuing such debt extremely expensive for banks.

Nonfinancial companies actually increased their paper outstanding for the second straight week, adding 7 percent. However, the market for such paper is just $111 billion, down 35 percent since the end of 2008.

Corporations also felt the impact of the Lehman bankruptcy in the CP market. Many opted to pay higher rates on longer-term debt rather than risk being unable to roll over their commercial paper every few weeks should the market seize up again.

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