Commercial Paper Rises for Fourth Time in Five Weeks, Fed Says

The market for corporate borrowing through short-term IOUs expanded for the fourth time in five weeks, led by an increase in nonfinancial issuance.

The seasonally adjusted amount of U.S. commercial paper rose $3.9 billion to $1.035 trillion outstanding in the week ended yesterday, the Federal Reserve said today on its website. That’s the highest level since $1.048 trillion in the period ended May 29. Last week, the market fell $17.2 billion after rising a total $55.3 billion during three periods.

IOUs issued by nonfinancial companies increased $2.8 billion to $220.1 billion outstanding, the highest level since $232 billion for the period ended Feb. 27, according to the Fed.

“The rise in domestic nonfinancial issuance is a reversal to the trend seen into May when borrowers were moving into short-term debt and locking in the low forward rates,” Howard Simons, strategist at Bianco Research LLC in Chicago, wrote in an e-mail. “Borrowers who are unsure of the trend in rates can take the rollover risk and remain in the CP market rather than shifting into the short end of the bond market.”

U.S. company bond yields surged to 3.91 percent yesterday, the highest level since August and up from a record low of 3.35 percent on May 2, according to the Bank of America Merrill Lynch U.S. Corporate & High Yield Index.

‘Mind Set’

The climb in yields has accelerated since Federal Reserve Chairman Ben S. Bernanke said May 22 that the central bank could reduce $85 billion in monthly Treasury and mortgage debt purchases within “the next few meetings” if officials see signs of sustainable improvement in the economy.

“The increase by the nonfinancial paper sector may signal that the mind set may be shifting as the expectation for the Federal Open Market Committee to taper increases,” Sean Simko, a money manager at SEI Investments Co. in Oaks, Pennsylvania, whose team manages about $3 billion of commercial paper, wrote in an e-mail. The FOMC is the U.S. central bank’s policy-setting body. Taper in market parlance refers to a potential reduction of the Fed’s bond buying.

Corporations sell commercial paper, typically maturing in 270 days or less, to fund everyday activities such as 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: Alan Goldstein at agoldstein5@bloomberg.net

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