Commercial paper outstanding rises to near-record levels.
The latest Federal Reserve weekly figures on the commercial paper market show an overall decline in the amount outstanding in the week to July 21. But parsed more closely, the figures show a big uptick in nonfinancial CP borrowings, which, at $210bn, were up 3.6 percent from the previous week. This is near the all-time high for nonfinancial CP outstanding, which hit $220bn in 2001, according to S&P.
The uptick in nonfinancial CP may reflect an increase in business and trade financing, or simply its use as a stand-in for the cash that multinationals are holding overseas.
Most corporates have sought to extend the duration of their borrowings since the near-collapse of the CP market after the Reserve Fund broke the buck in 2008. The market recovered after the government began backing banks’ CP issuance. But the Securities and Exchange Commission’s post-crisis crackdown on money fund holdings was expected to cut demand for this type of corporate paper.
So far, top-shelf issuers have not been affected. Rates remain near historic lows. The rate on AA 30-day CP was 0.08 percent on Wednesday, below the 0.15 and 0.19 percent averages for 2011 and 2010, respectively. However, the rates for second-tier credits are in line with those of the past two years, S&P reports.
Nonetheless, corporates are extending their maturities rather than reducing them by a nearly three-to-one ratio, according to a survey of treasurers at the NeuGroup’s T30-2 pilot meeting in June. This suggests that liquidity access concerns are still top of mind, despite the CP borrowing surge.