Commercial Paper Market Slows To A Crawl Amid Credit Fears
26 5월 2010 - 2:56AM
Dow Jones News
Borrowing in the commercial paper market, a key source of
short-term loans for banks and other businesses, slowed
precipitously Tuesday amid renewed concern about European
governments' debts and saber-rattling on the Korean peninsula.
European banks, normally large borrowers in the market, were
largely on the sidelines, reluctant to borrow at the elevated rates
sought by lenders, market participants said.
"European banks don't seem that concerned about raising money
today," said Chris Conetta, managing director and head of global
short-term credit trading at Barclays Capital in New York. "Several
large bank issuers have not responded to investors' bids."
There may be a couple of reasons for this lack of interest:
banks might already have the funding they need for now, or they may
prefer to take up an offer from the European Central Bank on
Tuesday to borrow for 91 days at a flat rate of 1%.
"The behavior of many large European banks suggests that they
may be in a better liquidity position than many had previously
thought," Conetta said.
Still, anxious investors were unwilling to consider offering
lower rates to try to lure banks into borrowing. A key benchmark
for the commercial paper market, the London Interbank Offered Rate,
or Libor, rose to 0.53625% Tuesday from 0.50969% Monday. That is
its highest since July 7, 2009, reflecting investors' reluctance to
take on risk without added compensation.
Investors were particularly reluctant to consider loans longer
than one month. The commercial paper market normally includes loans
as short as overnight and as long as 270 days.
The rates for 30-day asset-backed commercial paper--month-long
loans backed by tangible collateral--rose Tuesday by 1 basis point,
or 0.1 percentage point, for top-tier borrowers. The rate on that
debt had been 0.45% a day earlier, the Federal Reserve said, citing
statistics from the Depository Trust & Clearing
Corporation.
It was unclear how much rates on bank commercial paper rose
since there wasn't much trading of these. Bank paper generally is
unsecured by collateral.
Some market participants were surprised that rates didn't go
higher Tuesday, and expect it to rise in days ahead. The Libor rate
for three-month loans in dollars may rise to 0.55% or 0.56% on
Wednesday, said Mike Chang, an interest rate strategist at Credit
Suisse in New York.
-By Prabha Natarajan, Dow Jones Newswires; 212-416-2468;
prabha.natarajan@dowjones.com