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U.S. commercial paper down $1.7 billlion to lowest level in about 4 years | The Commercial Finance Blog

U.S. commercial paper down $1.7 billlion to lowest level in about 4 years

by LJ Miehe on April 23, 2009

Editor’s Note:   I disagree with Mr. Stone’s comment that the reduction in the commercial paper market is “I think largely it is for other reasons,”  with the Federal Reserve still the major lending in many of the financial markets.  We can not say that it is for other reasons until all these bailout programs are retired and then we can see how these markets function under their own strength.  My gut feeling is that this situation is getting worse by the day and that is why we will continue to have this intervention.

News (Reuters):

The U.S. commercial paper market contracted to its smallest in about four years as the global credit crisis and deep recession continued to erode it, analysts said.

For the week to April 22, the size of the U.S. commercial paper market, a key source of short-term funding for routine needs such as payroll at many companies, slipped by $1.7 billion to $1.472 trillion outstanding, from $1.474 trillion the previous week, Federal Reserve data showed on Thursday.

The overall U.S. commercial paper market peaked at about $2.2 trillion outstanding in August 2007 after which the credit crisis started to erode it.

The overall amount of U.S. commercial paper is still trending down and is at the lowest outstanding in about four years, said Ray Stone, economist with Stone & McCarthy Research Associates in Princeton, New Jersey.

“Is this occurring because issuers can’t issue commercial paper because the market is broken?” asked Stone.

“I think largely it is for other reasons,” he said. Non-financial companies often use commercial paper to help replenish inventories, which are still falling in the protracted recession and reducing the need to issue this type of paper, he said.

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