U.S. Commercial Paper Market Expands for Fourth Week, Fed Says

The market for corporate borrowing through commercial paper rose for a fourth straight week in the longest streak of increases in more than three months, as speculative-grade debt issuers favored shorter-dated IOUs.

The seasonally adjusted amount of U.S. commercial paper surged $29.3 billion to $997.9 billion outstanding in the week ended Nov. 21, the Federal Reserve said today on its website. It’s the longest stretch of increases since the period ended Aug. 1 and the highest level since the market touched $1.008 trillion for the period ended Sept. 19, according to Fed data compiled by Bloomberg.

“Domestic non-financial issuance has increased as issuance of corporate bonds has slowed since high-yield credit spreads began widening a month ago,” Howard Simons, strategist at Bianco Research LLC in Chicago, wrote in an e-mail.

Sales of high-yield bonds slowed to $23.3 billion this month, compared with a record $48.3 billion in all of October, Bloomberg data show. The extra yield investors demand to own junk bonds rather than government debentures rose to 598 basis points on Nov. 16, the highest since Sept. 3, according to the Bank of America Merrill Lynch U.S. High Yield Master II index. Spreads fell to 572 basis points on Nov. 21, the index data show.

The easing of disruptions to financial markets from Hurricane Sandy, which struck the northeastern U.S. on Oct. 29, and a rise of asset-backed commercial paper as rising housing market activity increases the amount of mortgage securities available are also reasons for commercial paper’s expansion, Simons said.

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

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net

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