Nov. 5 (Bloomberg) -- Companies are selling less U.S. commercial paper to the Federal Reserve amid growing investor demand and plunging short-term interest rates.

Companies this week through yesterday sold a daily average of $14.8 billion of commercial paper due in more than 80 days, down from an average of $52.7 billion last week, signaling falling rates may be reducing borrowers' dependence on the Fed's Commercial Paper Funding Facility.

The U.S. central bank created the CPFF, which began buying 90-day debt last week, to unlock the commercial paper market, which seized up on Sept. 15 when Lehman Brothers Holdings Inc. filed for bankruptcy. More money market funds are buying longer- dated commercial paper as overnight rates fall ``off the face of the earth,'' said David Glocke, head of taxable money-markets at Vanguard Group Inc. in Valley Forge, Pennsylvania

``The low overnight funding rates are pushing money-market investors off the sidelines,'' said Glocke, who manages $140 billion in taxable money-market assets in. ``It's causing those investors to go out and start to term out those assets as demand for paper, and three-months in particular, grows.''

The overnight repurchase, or repo, agreement rate for the Treasuries with maturities including two- and five-years traded at 0.05 percent today, among the lowest of all Treasuries. The so-called general-collateral repo rate, for non-specific Treasuries, closed at 0.25 percent, according to GovPX Inc., a unit of ICAP Plc, the world's largest inter-dealer broker.

Libor Falls

When demand for a security rises, traders lend cash below the federal funds rate to obtain the needed securities, charging zero interest at times. The overnight London interbank offered rate fell 0.05 percentage point to 0.32 percent, the lowest since at least January 2001.

Interest rates on the highest-ranked 30-day commercial paper fell 0.52 percentage point to 1.22 percent, the lowest since June 2004, according to yields offered by companies and compiled by Bloomberg. The average was as high as 4.28 percent a month ago. Yields on 90-day paper fell 0.41 percentage point to 2.21 percent, 0.34 percentage point below the Fed's rate.

The Fed today set the rate it's willing to accept for 90-day commercial paper at 2.55 percent, down 0.05 percentage point, including a 1 percentage-point unsecured credit surcharge. The 90-day secured asset-backed rate was set at 3.55 percent, according to Fed data compiled by Bloomberg.

The rates are set under the Fed's Commercial Paper Funding Facility and are available on CPFF. Commercial paper, which matures in 270 days or less, is used by companies to finance daily expenses such as payroll and rent. The Fed's facility absorbed $145.7 billion of paper, or more than 9 percent of the market, in its first three days.

Financial Companies

Companies issued $19.9 billion of commercial paper due in more than 80 days on Nov. 3 and $9.6 billion yesterday, according to Fed data. Top-rated financial companies have sold no commercial paper due in more than 80 days this week, compared with a daily average of $7.47 billion last week.

Rates on 30-day commercial paper backed by assets such as auto loans and credit cards fell 0.11 percentage point to 2.26 percent, the lowest since December 2004. Yields on 90-day asset- backed paper dropped 0.39 percentage point to 2.34 percent, 1.21 percentage points less than the Fed demands.

The following companies are among those that have registered with the CPFF: American Express Co.; American International Group Inc.; Chrysler Financial Corp.; Ford Motor Credit Corp.; GMAC LLC; General Electric Co.; General Electric Capital Corp.; Harley-Davidson Inc.; Kookmin Bank; Korea Development Bank; Morgan Stanley; Prudential Financial Inc. and Torchmark Corp.

-- With reporting by Liz McCormick in New York. Editors: Romaine Bostick, John Pickering.

To contact the reporter on this story: Bryan Keogh in New York at bkeogh4@bloomberg.net

Last Updated: November 5, 2008 11:42 EST