Nov. 5 (Bloomberg) -- Interest rates on U.S. commercial paper dropped to the lowest in about four and a half years as companies issued less of the debt to the Federal Reserve.

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. Yields on 90-day paper fell 0.41 percentage point to 2.21 percent, 0.34 percentage point below the Fed's rate.

Companies on Nov. 3 sold $19.9 billion of commercial paper due in more than 80 days, down from a daily average of $52.7 billion last week, signaling dropping rates may be reducing borrowers' dependence on the Fed facility. Top-rated financial companies sold no commercial paper due in more than 80 days, compared with a daily average of $7.47 billion last week.

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.

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.

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

Last Updated: November 5, 2008 08:59 EST