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.