The market for corporate borrowing through commercial paper contracted to the lowest level in five months as issuers reduced offerings of short-term IOUs, instead extending debt maturities by selling corporate bonds.
The seasonally adjusted amount of U.S. commercial paper fell $10.2 billion to $964.9 billion outstanding in the week ended yesterday, the Federal Reserve said today on its website. It’s the longest stretch of declines since the period ended Oct. 19, 2011 and 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 may degrade credit quality globally, making it more difficult for companies to repay short-term obligations. Borrowers are seizing advantage of record-low interest rates to issue longer-term company debt.
“Commercial-paper issuers are mindful of the current world where investors can and have abruptly caused debtors to lose market access, and have opted in many cases to extend their maturities,” rather than issue short-term IOUs, Tony Crescenzi, a portfolio manager and strategist at Pacific Investment Management Co. in Newport Beach, California, wrote in an e-mail.
Commercial paper issued by U.S.-based financial institutions fell for a sixth week, dropping $8.1 billion to $249.4 billion outstanding, the lowest level since January 2011. Short-term IOUs sold by non-U.S. banks rose for a third week, increasing $200 million to $234.9 billion outstanding, according to the Fed.
Weakness in the global economy is also reducing issuance, as companies have less need to raise short-term working capital, Crescenzi wrote. Corporations sell commercial paper, typically maturing in 270 days or less, to fund everyday activities such as rent 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, according to data compiled by Bloomberg. Yields on global investment-grade company bonds fell to an all-time low 2.725 percent yesterday, according to Bank of America Merrill Lynch index data.