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Commercial Paper Declines for First Time in Four Weeks, Fed Says

The market for corporate borrowing through short-term IOUs contracted for the first time in four weeks, led by a fall in issuance from non-financial businesses.

The seasonally adjusted amount of U.S. commercial paper declined $9.3 billion to $1.055 trillion outstanding in the week ended yesterday, the Federal Reserve said today on its website. That’s the biggest drop since the period ended July 31 and the lowest level since the market touched $1.047 trillion for the week ended Sept. 18.

The decline in domestic nonfinancial issuance is “almost wholly a lagged response to the decline in short-term bond rates,” Howard Simons, strategist at Bianco Research LLC in Chicago, wrote in an e-mail. “Issuers have a renewed incentive to term out debt.”

IOUs sold by non-financial companies fell from a 12-year high, dropping $8 billion to $234.5 billion, the Fed said. Dollar-denominated company bond yields fell to 4.1 percent yesterday from a 15-month high of 4.37 percent on Sept. 5, according to Bank of America Merrill Lynch index data, after the central bank said last month it would maintain the pace of economic stimulus.

The Fed said Sept. 18 that it would keep buying $45 billion of Treasuries and $40 billion of mortgage bonds monthly until at least its next meeting Oct. 29-30. Policy makers were “somewhat concerned” by tightening financial conditions and decided to keep their current level of asset purchases as a “precautionary step,” Chairman Ben S. Bernanke said at a news conference at the time.

Corporations sell commercial paper, typically maturing in 270 days or less, to fund everyday activities such as rent and salaries.

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