U.S. commercial paper outstanding resumes decline

by LJ Miehe on March 22, 2009

The U.S. commercial paper outstanding fell in the latest week, resuming its recent decline, suggesting persistent tension in short-term credit markets, Federal Reserve data released on Thursday showed.

The U.S. government hopes to break this stubborn credit logjam as it kicked off its Term Asset-Backed Securities Loan Facility (TALF) in a bid to stimulate lending to cash-strapped consumers and small business.

This latest rescue program comes a day after the Fed pledged to buy another $1.15 trillion in debt securities, including $300 billion in Treasuries, with the goal of lowering private-sector interest rates and improving overall credit conditions.

Total commercial paper outstanding fell $7.5 billion to $1.477 trillion in the week ended March 18. It is far below its peak of $2.2 trillion prior to the onset of the credit crunch that led to the global economic downturn.

Commercial paper is a crucial source of short-term funds for many companies, who spend the proceeds on payrolls and inventories.

The week’s shrinkage in the CP market was led by a $17.3 billion decline in asset-backed commercial paper outstanding, which ended at $699.8 billion on Wednesday.

However, the closely-watched unsecured financial CP sector, which reflects the state of the battered banking industry, grew for a second week in a row. This type of commercial paper outstanding increased by $10.8 billion to $587.3 billion.

Source: Reuters

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