Commercial Paper Market Expands for 11th Straight Week, Fed Says

The market for corporate borrowing through commercial paper expanded for an 11th straight week to the highest level since August 2011, stoked by rising demand from U.S. money-market funds.

The seasonally adjusted amount of U.S. commercial paper climbed $23.2 billion to $1.105 trillion outstanding in the week ended yesterday, the Federal Reserve said today on its website. It’s the longest stretch of advances since the period ended May 25, 2011, and the highest level since the market touched $1.117 trillion on Aug. 24, 2011, according to Fed data.

“Improved credit conditions for the commercial banks, foreign banks included, and the problems of the Libor market are making CP a preferred short-term funding vehicle and a parking-place for short-term cash,” Howard Simons, strategist at Bianco Research LLC in Chicago, wrote in an e-mail.

Money-market mutual funds, among the biggest investors for short-term IOUs, have been raising their holdings during the past six months, spurring companies and banks to accelerate their issuance of commercial paper, typically maturing in 270 days or less, which corporations use to fund everyday activities such as rent and salaries.

‘Natural Lender’

The funds’ assets “increased another $38 billion this past week, and that is restoring a natural lender to the CP market,” Simons wrote.

Global authorities are investigating claims that more than a dozen banks rigged submissions used to set lending benchmarks such as the London interbank offered rate to profit from bets on interest-rate derivatives or make their finances appear healthier.

Commercial paper issued by U.S.-based financial institutions rose for a third week, climbing $12.9 billion to $327.7 billion outstanding, the highest level since September 2011, while the amount sold by non-U.S. banks declined $500 million to $246.4 billion.

The discount rate on top-rated, 30-day, dealer-placed commercial paper fell to 0.19 percent at 8:40 a.m. today in New York, matching the lowest level in data going back to 1988, according to prices compiled by Bloomberg.

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