Commercial Paper Market Falls Most in Two Months, Fed Says

The market for corporate borrowing through U.S. commercial paper contracted the most in about two months as demand decreased from money market funds, among the biggest investors.

The seasonally adjusted amount of U.S. commercial paper declined $6.7 billion to $925.9 billion outstanding in the week ended yesterday, the third fall in four weeks, according to Federal Reserve data compiled by Bloomberg. That’s the largest decline since the market shrank $10.4 billion in the period ended Feb. 29 and the lowest level since reaching $925.6 billion outstanding on March 7, the data show.

Appetite from money-market funds has been curbed by concern that Europe’s sovereign debt strains will infect bank balance sheets. Italy’s borrowing costs rose at a sale of six-month bills today, while an index of euro-area economic confidence declined more than analysts forecast.

“We cannot separate the CP outstanding numbers from the continued erosion in money-market mutual fund demand,” Howard Simons, strategist at Bianco Research LLC in Chicago, wrote in an e-mail.

Commercial paper sold by U.S.-based banks contracted to the least in more than a year. That category dropped $9.7 billion to $258.8 billion outstanding, the biggest decrease this year and the lowest level since January 2011, according to the Fed. Commercial paper issued by non-U.S. financial institutions rose $1 billion to $162.5 billion outstanding, partially reversing the prior week’s $2 billion drop.

Corporations sell commercial paper, typically maturing in 270 days or less, to fund everyday activities such as paying rent and salaries.

To contact the reporter on this story: John Parry in New York at jparry5@bloomberg.net

To contact the editor responsible for this story: Shannon D. Harrington at sharrington6@bloomberg.net

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