UPDATE: Commercial Paper 81+ Days Maturity Jumps To $38.2 Billion
April 28 2009 - 1:19PM
Dow Jones News
Outstanding U.S. commercial paper maturing in 81 days or more
jumped on Monday to more than six times its level from last week to
$38.2 billion, according to Fed data released Tuesday.
The spike is the result of companies refinancing three-month
loans from the Federal Reserve's Commercial Paper Funding Facility
that mature this week.
Market participants expect a substantial portion of the loans to
be refinanced through investors rather than the Fed, in a sign that
the commercial paper market continues to heal.
"At least half of what is maturing will return to the market,"
said Deborah Cunningham, chief investment officer at Federated
Investors in Pittsburgh. "The market is healthy and investors are
looking to buy commercial paper."
The Fed will release data on Thursday, which will show whether
its outstanding short-term loans to companies are declining.
The central bank has been supporting about a fifth of this $1.47
trillion market ever since it set up its commercial paper facility
last year to lend directly to companies.
Approximately $125 billion worth of three-month financing
provided through the Fed's program comes due this week, according
to Wrightson ICAP estimates.
As of last week, the Fed held $242.43 billion of top-rated
commercial paper, down from about $334 billion at the end of
2008.
The Fed offers higher lending rates than investors, in an effort
to get issuers to interact directly in the market rather than
leaning on the bank.
"Currently, market conditions have improved so dramatically that
the Fed does not have to create an incentive for issuers to leave
the program," said Chris Conetta, managing director and head of
U.S. commercial paper trading at Barclays Capital in New York.
Conetta pointed out there is "a core amount" of commercial paper
that will remain in the Fed's program while issuers work on
alternative funding solutions to become less reliant on the
Fed.
Some companies have accomplished this by issuing longer-term
debt under government-guaranteed programs. Others have left the
commercial paper market altogether as the economy remains sluggish
and their need for cash declines.
-By Anusha Shrivastava, Dow Jones Newswires; 201-938-2371;
anusha.shrivastava@dowjones.com