Commercial Paper Market Falls to Least in Eight Months, Fed Says

The market for borrowing through short-term IOUs contracted to the lowest level in more than eight months, as companies increased issuance of corporate bonds.

The seasonally adjusted amount of U.S. commercial paper fell $11.2 billion to $984.9 billion outstanding in the week ended yesterday, the second straight decline, the Federal Reserve said today on its website. That’s the least since the market touched $968.6 billion in the period ended Nov. 14.

Last month was the busiest July on record for dollar-denominated corporate-bond sales with $113.4 billion of issuance following the slowest June in 14 years. Investor demand is reviving as the Fed says it plans to maintain stimulus efforts. Companies are favoring bonds as yields decline from a one-year peak to obtain longer-term, stable funding.

The decrease in commercial paper issuance “followed the renewed decline in short-term, investment-grade corporate yields,” Howard Simons, a strategist at Bianco Research LLC in Chicago, wrote in an e-mail.

Yields dropped to 4.04 percent yesterday from 4.3 percent on June 25, the highest level in 12 months, according to the Bank of America Merrill Lynch U.S. Corporate & High Yield Index.

“This suggests corporate borrowers are locking in rates in the bond market once again, a phenomenon seen through the end of April,” Simons said.

IOUs issued by non-financial companies dropped $11.5 billion to $203 billion, the lowest level since the period ended May 15, the Fed said. Commercial paper issued by U.S.-based banks decreased $6.1 billion to $256.4 billion outstanding, the least since the period ended July 10.

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

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