U.S. Commercial Paper Market Expands to Most Since May, Fed Says

The market for corporate borrowing through short-term IOUs expanded to the most in almost four months as investors prepared for a reduction in Federal Reserve stimulus that failed to materialize.

The seasonally adjusted amount of U.S. commercial paper outstanding rose $11.8 billion to $1.047 trillion in the week ended yesterday, the Fed said today on its website. That’s the second straight increase and the highest level since the period ended May 29.

Demand from money-market funds, among the biggest investors in commercial paper, has increased during the last month amid a bond-market selloff as investors prepared for an expected trimming of the central bank’s debt purchases. Yesterday, the policy-setting Federal Open Market Committee refrained from curbing the $85 billion pace of its monthly securities buying, triggering the biggest rally in Treasuries since 2011.

“The continued rise in financial issuance reflects the ongoing gains in money-market fund assets, which have expanded $40 billion since the start of August,” Howard Simons, a strategist at Bianco Research LLC in Chicago, wrote in an e-mail. That shift reflected a move away from bonds into shorter-maturity instruments “in expectation of the Federal Reserve’s taper.”

Total assets in the funds increased to $2.659 trillion in the week ended Sept. 11 from $2.612 trillion on July 31, according to the Investment Company Institute.

Commercial paper sold by non-U.S. financial institutions climbed $10 billion to $267.3 billion, the first advance in four weeks, while the amount issued by U.S.-based banks rose $3.5 billion to $280 billion, the highest level since the period ended July 3, according to the Fed.

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

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