The market for corporate borrowing through U.S. commercial paper contracted for the first time in six weeks, led by a decline in issuance from financial institutions, as Europe’s sovereign-debt crisis intensified.
The seasonally adjusted amount of commercial paper fell $14.7 billion to $1.014 trillion outstanding in the week ended yesterday, the Federal Reserve said today on its website. The market tumbled from the highest level in eight months in the biggest weekly drop since the period ended Feb. 22, according to Fed data compiled by Bloomberg.
Demand from money-market funds, among the biggest investors in the market, is constrained by concern that fiscal upheaval in Europe will infect bank balance sheets and curb economic growth across the world. Federal Reserve Chairman Ben S. Bernanke said today the economy is at risk from Europe’s debt turmoil and the prospect of fiscal tightening in the U.S.
A decline in domestic financial entities’ issuance of commercial paper dominated the market’s contraction this week, Howard Simons, strategist at Bianco Research LLC in Chicago, wrote in an e-mail. That fall “came just before suggestions of further extraordinary actions on behalf of European sovereign debtors, Spain in particular,” he said.
The prospect of cheaper funding from central banks would reduce the incentive for banks to borrow in the short-term lending markets. “If domestic financial issuers ‘sensed’ the latest round of likely interventions, they would desist from issuing new CP,” Simons said.
Commercial paper issued by U.S.-based banks fell for the first time in six weeks, plunging $15.9 billion to $286.4 billion outstanding in the steepest weekly fall since the period ended Oct. 19. The amount sold by non-U.S. financial institutions decreased $1.6 billion to $198.5 billion outstanding, the first decline in five weeks, according to the Fed.
Spain’s Budget Minister Cristobal Montoro said on June 5 that the “door of the markets isn’t open to Spain” as he called for European institutions to help the nation shore up its lenders. Still, the country’s Treasury beat its 2 billion-euro ($2.5 billion) target at a bond sale today, easing concern about financing the region’s third-biggest budget deficit.
Corporations sell commercial paper, typically maturing in 270 days or less, to fund everyday activities such as rent and salaries.