Commercial Paper Shrinks for Second Week

UPDATE 1-U.S. commercial paper shrinks for 2nd week - Fed
14 hours ago via Thomson Reuters

By John Parry and Walden Siew

NEW YORK, March 25 (Reuters) - The U.S. commercial paper market shrank for a second straight week, hinting that companies may still be cautious about the pace of economic growth, Federal Reserve data showed on Thursday.

Firms typically use commercial paper to restock shelves in anticipation of consumer demand and to pay wages. Many have been trimming commercial paper issuance as they slow the pace they add to inventories, for fear the U.S. economic rebound might run out of steam, some analysts say.

Recent shifts in the commercial paper market "are linked to a slowdown in the inventory rebuilding cycle that we saw in the second half of 2009," said Howard Simons, strategist with Bianco Research in Chicago.

For the week up to March 24, the size of the U.S. commercial paper market fell by about $7.9 billion to $1.114 trillion outstanding from $1.122 trillion the previous week.

In addition, money market funds, which are big participants in the market, have been selling commercial paper recently, eroding the market's size, said Tony Crescenzi, market strategist and portfolio manager at Pacific Investment Management Co. (PIMCO).

As risk aversion subsides, some investors in money market funds have been switching into riskier, higher-yielding assets such as corporate bonds and stocks, analysts said.

A surge of corporate debt issuance over the past year has replaced some of the short-dated commercial paper debt companies and banks might otherwise have sold, limiting the size of the commercial paper market, strategists add.

"Companies have been terming out their debt and (are) not interested in issuing," Crescenzi said. "Companies can issue debt at longer maturities at decent yields" to borrow fairly cheaply, he added.

The overall U.S. commercial paper market is now about half its peak size of $2.2 trillion outstanding in August 2007 when the credit crisis began.

U.S. asset-backed commercial paper rose to $414.4 billion outstanding in the latest week from $410.3 billion outstanding the previous week.

Unsecured financial issuance fell by $11.6 billion after falling by $24.2 billion the previous week. (Reporting by John Parry and Walden Siew; Editing by James Dalgleish and Padraic Cassidy)
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Secular, not cyclical - Print Is Dead.


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