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U.S. Commercial Paper Market Declines for Third Week, Fed Says

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March 21 (Bloomberg) -- The market for corporate borrowing through short-term IOUs contracted for a third week, led by a fall in issuance from nonfinancial companies as firms chose to issue corporate bonds at almost the lowest borrowing costs.

The seasonally adjusted amount of U.S. commercial paper fell $1.6 billion to $1.016 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 for the period ended Nov. 21.

Companies are favoring bonds to obtain longer-term, stable funding with yields at almost record lows, in preference to shorter-term financing via shorter-term commercial paper.

“The key driver once again seems to be the terming out of short-term debt into the corporate-bond market to lock in low rates for a longer period of time without incurring rollover risk,” Howard Simons, strategist at Bianco Research LLC in Chicago, wrote in an e-mail. “I would expect similar and larger contractions to occur the next time there is speculation over an eventual end to the era of artificially low short-term rates.”

IOUs issued by nonfinancial companies declined for a fourth week, dropping $11.5 billion to $200.8 billion, the least since the period ended Nov. 21. 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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