(US) Commercial Paper Outstanding Has Biggest Weekly Drop Since 2000

Commercial Paper Outstanding Has Biggest Weekly Drop Since 2000

http://www.bloomberg.com/apps/news?pid=20601087&sid=aEIjZBgPR2ZI&refer=home

By Darrell Hassler

Aug. 23 (Bloomberg) -- The amount of U.S. commercial paper outstanding had its biggest weekly percentage drop since 2000 as investors shunned debt that may be linked to mortgages and other risky assets and instead opted for the safety of Treasuries.

The amount dropped $90.2 billion, or 4.23 percent, to a seasonally adjusted $2.04 trillion as of yesterday from Aug. 15, according to the Federal Reserve. The percentage drop is the biggest drop since at least November 2000, according to data compiled by Bloomberg.

Some companies that use commercial paper to buy asset-backed securities or collateralized debt obligations backed by subprime mortgages are having trouble finding investors. Commercial paper buyers, in the face of attempts by the Federal Reserve to ease the credit crunch, have headed for Treasury bills in which the yield on Aug. 20 fell the most since the stock market crash of 1987.

``There is a significant amount of cash in the system, it's just not getting to the parts of the market that need it,'' Conrad DeQuadros, a senior economist at Bear Stearns Cos., said in an interview today in New York.

The Fed has lowered the interest it charges to lend to banks to encourage buyers of commercial paper after the market seized up last week for Countrywide Financial Corp. and other mortgage lenders. Countrywide, based in Calabasas, California, borrowed its entire $11.5 billion in available bank credit lines in order to fund its operations.

Countrywide said yesterday that Bank of America Corp. agreed to provide $2 billion of new capital through the purchase of preferred securities.

The decline in outstanding commercial paper was driven by a 6.8 percent fall in asset-backed commercial paper, which represents about half the commercial paper market and has been used to finance purchases of subprime mortgages.

The average yield on 30-day asset-backed paper rated A1, the second-highest short-term credit rating by Standard & Poor's, rose 5 basis points, or 0.05 percentage point, to 6.1 percent. It has risen 35 basis points in the past week.

``The complete and wanton disrespect for ratings is evident in the huge drawdown of'' asset-backed paper, Bear Stearns analyst Gyan Sinha said in an Aug. 21 report.

Edited 1 time(s). Last edit at 08/23/2007 11:15AM by regli.