Oct. 10 (Bloomberg) -- General Electric Co. and Toyota Motor Corp. lowered their overnight borrowing rates as average yields fell to a two-week low, signaling the lowest Federal Reserve target lending rate in four years may be having an effect.

Yields on the highest-rated one-day commercial paper placed by dealers declined 0.57 percentage point to 1.78 percent, the lowest since Sept. 26, according to data compiled by Bloomberg. GE is offering 0.25 percent to issue overnight commercial paper, the lowest since at least Oct. 3. The finance arm of Toyota Motor posted a one-day rate of 0.5 percent, down from 2 percent.

The Fed led central banks worldwide in an unprecedented cut in global interest rates this week in an attempt to thaw short- term debt markets locked in the worst financial crisis since the Great Depression. The drop in commercial paper rates may signal that companies are beginning to benefit from the half-percentage- point cut in the Fed's key rate to 1.5 percent and the central bank's decision to backstop the market by buying the debt.

``We really see the CP market improving right now,'' GE Chief Executive Officer Jeffrey Immelt said today during a conference call with investors on his company's quarterly earnings. ``We've had no problems with our own CP.''

Commercial paper, which typically matures in 270 days or less, is used by companies to finance payroll, rent and other daily expenses. The average rates, which may change depending on demand and other factors, are based on the yields offered by companies each morning. The actual yields paid aren't released.

The Fed's cut is helping to lower commercial paper rates, said Tony Crescenzi, the chief bond market strategist at Miller Tabak & Co. in New York.

``The issuers are top-notch companies in most cases,'' he said in an e-mail message. ``Few have the type of exposure that is causing such widespread fear.''

Toyota

GE lowered its commercial paper rates after the Fairfield, Connecticut-based company posted a third-straight decline in quarterly profit, eroded by lower earnings at its finance arm. GE reduced its commercial paper outstanding to $88 billion, still the most of any company, and plans to cut the debt further, Chief Financial Officer Keith Sherin said on the conference call.

Toyota Motor Credit, the biggest issuer of commercial paper among non-financial companies, also cut its seven-day rate 25 basis points to 2.25 percent, Bloomberg data show. The company had an average of $20.8 billion outstanding daily as of June, according to JPMorgan Chase & Co.

The cost of borrowing dollars in London overnight plunged as longer-term rates rose, showing short-term debt markets are still frozen.

FED CP Program

The three-month London interbank offered rate, or Libor, climbed 7 basis points to 4.82 percent and the rate in Tokyo jumped to the highest since 1998 even as the Bank of Japan added more than $30 billion to the banking system. Overnight Libor fell 2.63 percentage points to 2.47 percent, the British Bankers' Association said.

The difference between what banks and the Treasury pay to borrow money for three months, the so-called TED spread, was at 451 basis points, the most since Bloomberg began tracking the data in 1984.

``One of the things that will be very positive is when the Fed gets this CP program going,'' said Andrew Harding, chief investment officer for fixed income at Allegiant Asset Management. ``They need to get that going now, not two weeks from now, three weeks from now. They need to get it going now.''

GE Capital has been able to issue commercial paper without interruption, Sherin said. He said GE is working with the Federal Reserve on the mechanics of the central bank's decision this week to create a special fund to buy paper from companies like GE that have A1/P1 ratings. GE would be eligible for as much as $60 billion at GE Capital and $10 billion for the parent, he said.

GE is funding itself ``without any issues,'' Sherin said.

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

Last Updated: October 10, 2008 11:21 EDT