The market for corporate borrowing through short-term IOUs contracted for the seventh time in eight weeks, led by a fall in issuance from nonfinancial firms.
The seasonally adjusted amount of U.S. commercial paper decreased $2.6 billion to $1.018 trillion outstanding in the week ended yesterday, the Federal Reserve said today on its website. That’s the lowest level since the market touched $997.9 billion in the period ended Nov. 21.
Companies are issuing more corporate bonds to lock in longer-term, stable funding with yields at almost record lows, in preference to shorter-term financing via commercial paper, which has to be rolled over more often.
“Commercial paper issuance from nonfinancial companies is declining in part because of efforts by these companies to extend the maturities on their debts,” Tony Crescenzi, a portfolio manager and strategist at Pacific Investment Management Co. in Newport Beach, California, said in an e-mail. “This terming out is part of a longer-term effort to reduce dependencies upon short-term liquidity sources that during the financial crisis were abruptly shut off.”
IOUs issued by nonfinancial companies dropped $4.8 billion to $212.3 billion, the least since $209.3 billion for the period ended Jan. 2, the Fed said.
Corporations sell commercial paper, typically maturing in 270 days or less, to fund everyday activities such as rent and salaries.