The market for corporate borrowing through commercial papercontracted to the lowest level in five months as issuers reducedofferings of short-term IOUs, instead extending debt maturities byselling corporate bonds.

The seasonally adjusted amount of U.S. commercial paper fell$10.2 billion to $964.9 billion outstanding in the week endedyesterday, the Federal Reserve said today on its website. It's thelongest stretch of declines since the period ended Oct. 19, 2011and the lowest level since the market touched $939.9 billion May 2,according to Fed data compiled by Bloomberg.

Issuers are concerned that Europe's persistent debt crisis maydegrade credit quality globally, making it more difficult forcompanies to repay short-term obligations. Borrowers are seizingadvantage of record-low interest rates to issue longer-term companydebt.

“Commercial-paper issuers are mindful of the current world whereinvestors can and have abruptly caused debtors to lose marketaccess, and have opted in many cases to extend their maturities,”rather than issue short-term IOUs, Tony Crescenzi, a portfoliomanager and strategist at Pacific Investment Management Co. inNewport Beach, California, wrote in an e-mail.

Commercial paper issued by U.S.-based financial institutionsfell for a sixth week, dropping $8.1 billion to $249.4 billionoutstanding, the lowest level since January 2011. Short-term IOUssold by non-U.S. banks rose for a third week, increasing $200million to $234.9 billion outstanding, according to the Fed.

Weakness in the global economy is also reducing issuance, ascompanies have less need to raise short-term working capital,Crescenzi wrote. Corporations sell commercial paper, typicallymaturing in 270 days or less, to fund everyday activities such asrent and salaries.

Companies have sold $3.1 trillion of bonds worldwide this year,a pace that's second only to the record issuance in 2009, accordingto data compiled by Bloomberg. Yields on global investment-gradecompany bonds fell to an all-time low 2.725 percent yesterday,according to Bank of America Merrill Lynch index data.

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