US commercial paper market size hits 10-month high

NEW YORK: The amount of U.S. commercial paper outstanding increased to its highest level in 10 months in the latest week, suggesting a broad pickup in corporate demand for short-term credits, Federal Reserve data showed on Thursday.

U.S. non-seasonally adjusted commercial paper (CP) outstanding  rose to $1.106 trillion, which was the highest since the $1.25 trillion in the week of June 20, 2018.

The total grew by $29.3 billion from the week before, marking its biggest weekly increase in about three months.

Companies sell commercial paper to finance their payrolls and inventories, while banks use them to fund loans they make. Money market funds are major CP buyers.

Seasonally adjusted commercial paper outstanding - which some analysts consider a less reliable reading than the non seasonally adjusted one since it has been distorted by the financial crisis - rose $9.9 billion to $1.081 trillion in the latest week.

Non-seasonally adjusted CP outstanding from non-financial companies increased by $17.4 billion, while those issued by financial companies rose by $12.3 billion.

The amount of top-rated commercial paper in which regulated money market funds can invest grew to $394.4 billion in the latest week from $391.1 billion a week earlier.

The sum of lower-rated CP for regulated money funds increased to $97.3 billion from $89.7 billion the week before.

This week's jump in CP supply occurred even as money fund assets recorded a huge decline.

Domestic money market fund assets tumbled by $53.19 billion, marking their biggest weekly drop in about 10 months to $3.016 trillion in the week ended April 16, the Money Fund Report said  on Wednesday.

Higher borrowing costs in the federal funds and repurchase agreements markets this week may have bolstered the appeal of commercial paper as a funding source.

Overnight rates on CP issued by banks averaged 2.39% on Wednesday. This compared with 2.65% on the overnight repo rate and 2.42% on the fed funds rate.