U.S. commercial paper market shrinks as borrowing costs rose to high level

Vastavam web: U.S. commercial paper supply contracted this week to its lowest level in 11 weeks, Federal Reserve data showed on Thursday, as short-term borrowing costs for companies to borrow dollars rose to levels not seen since the height of the global financial crisis.Short-term private borrowing costs have risen in recent weeks, even in the absence of a rate hike from the Federal Reserve, due to a surge in Treasury bill supply stemming from a two-year federal budget deal reached in February.

Moreover, the expected repatriation of dollars from U.S. companies linked to last year’s massive tax overhaul also has limited availability of greenbacks on the open market, analysts said.Commercial paper, commonly referred to as CP, is short-term debt that banks, manufacturers and other firms sell to raise money to finance their loans, payrolls and inventories. Money market funds and other cash investors buy them.

Interest rates on three-month CP issued by top-tier banks were averaging 2.01 percent in the latest week, levels last seen during autumn 2008 in the aftermath of the collapse of Lehman Brothers. This compared with 1.99 percent the previous week.Three-month rates on CP from non-financial companies were averaging 1.90 percent versus 1.85 percent the prior week, Fed data showed.