The market for corporate borrowing through commercial paper expanded by the most in more than two months, led by an increase in issuance by foreign financial institutions, even as Europe’s fiscal turmoil spreads.
The seasonally adjusted amount of U.S. commercial paper climbed $20.1 billion to $1.003 trillion outstanding in the week ended yesterday, the third consecutive rise, the Federal Reserve said today on its website. It’s the biggest advance since a $27.2 billion increase for the period ended May 16 and the highest level since the week ended June 27.
Issuance has risen even as demand from U.S. money-market funds, among the biggest investors, has declined amid concern that Europe’s debt crisis will infect bank balance sheets globally. European Central Bank President Mario Draghi said today policy makers will do whatever is necessary to preserve the euro, suggesting they may intervene in bond markets as surging yields in Spain and Italy threaten the existence of the 17-nation currency bloc.
“U.S. institutions have pulled back from extending funds to Europe. It’s not to me obvious, especially with what’s happened with Spanish and Italian debt yields, that people all of a sudden view Europe as a less risky place,” John Ryding, chief economist and co-founder of RDQ Economics in New York, said in a telephone interview.
“People are still very concerned about it, so to see an increase in foreign financial commercial paper issuance might be a sign that attitudes toward extending credit to European institutions aren’t as bad,” he said.
Commercial paper sold by non-U.S. financial institutions surged $9.8 billion to $212.3 billion outstanding, the highest level since August and the biggest jump since a $11.1 billion rise in the period ended May 30. The amount issued by U.S.-based banks decreased $1.2 billion to $281.2 billion outstanding, the third decline in four weeks, according to the Fed.
Prime money-market funds’ holdings of Euro-area banks fell 33 percent last month to 8 percent of the funds’ assets, according to Fitch Ratings. That’s the lowest level since the end of 2006 when the ratings company started tracking the 10 largest U.S. prime money funds investments, Fitch said in a statement yesterday.
Corporations sell commercial paper, typically maturing in 270 days or less, to fund everyday activities such as rent and salaries.