The market for corporate borrowing via short-term IOUs recorded the biggest jump since July, as investors bought domestic financial paper amid optimism that U.S. banks could withstand the impact of Europe’s debt crisis.
The seasonally adjusted amount of U.S. commercial paper outstanding rose by $18.7 billion to $979.7 billion in the week ended Nov. 2, rising for a second period after the longest losing streak in more than a decade, the Federal Reserve said today on its website. That’s the biggest weekly dollar gain since the market expanded $20.7 billion the week of July 13.
A surge in short-dated borrowing by domestic financial institutions led the expansion of the market as bond traders wagered that European leaders may prevent upheaval in the region’s debt markets from infecting bank balance sheets globally. Investors have since questioned the effectiveness of Europe’s rescue plan after the Greek Prime Minister George Papandreou this week unexpectedly called for a referendum on the country’s bailout.
“All banks have probably found it easier to get back into the market when they thought that there was going to be some resolution in the European banks,” said Howard Simons, strategist with Bianco Research LLC in Chicago. “If the European banks go there’s no way you can avoid a contagion to the U.S. banks,” he said.
The amount of commercial paper issued by U.S.-based banks snapped six weeks of declines, rising $19.7 billion to $285.9 billion outstanding. Commercial paper sold by non-U.S. financial institutions decreased $3 billion to $182.8 billion, snapping a two-week advance. Corporations sell commercial paper to fund everyday activities such as paying rent and wages.
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