The market for corporate borrowing via commercial paper contracted to the least in almost two months as financial issuers relied more on central bank financing after monetary easing steps by the Federal Reserve and European Central Bank.
The seasonally adjusted amount of U.S. commercial paper fell $7.2 billion to $1.008 trillion outstanding in the week ended yesterday, the third consecutive decrease, the Federal Reserve said today on its website. It's the longest stretch of declines since the period ended June 20 and the lowest level since the market touched $1.003 trillion in the period ended July 25, according to Fed data compiled by Bloomberg.
As investor demand has declined for short-term obligations from banks on concern that Europe's sovereign-debt turmoil will taint balance sheets globally, financial borrowers have turned more to central banks for funding. European Central Bank President Mario Draghi said Sept. 6 that policy makers agreed to an unlimited bond-purchase program. The Federal Reserve said on Sept. 13 it will expand its holdings of long-term securities with purchases of $40 billion of mortgage debt a month.
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"Financial-sector issuance is in decline as external short-term financing has been provided by central banks in lieu of the market," Howard Simons, strategist at Bianco Research LLC in Chicago, wrote in an e-mail.
Commercial paper sold by non-U.S. financial institutions dropped about $6.2 billion to $229 billion outstanding, the lowest level since the period ended Aug. 8, while the amount issued by U.S.-based banks fell for a third straight week, declining $4.4 billion to $286.5 billion outstanding, according to the Fed.
Corporations sell commercial paper, typically maturing in 270 days or less, to fund everyday activities such as rent and salaries. Borrowers are issuing less in this market as they are "taking advantage of low interest rates and terming out their debt," by selling longer-maturity corporate bonds, Sean Simko, a money manager at SEI Investments Co. in Oaks, Pennsylvania, whose team manages about $3 billion of commercial paper, wrote in an e-mail.
Investment-grade, dollar-denominated borrowing costs fell yesterday to an unprecedented 2.94 percent, according to Bank of America Merrill Lynch index data.
Bloomberg News
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