Company borrowing through short-term IOUs has shrunk to thelowest level since 2012 as money-market funds continue to pull backamid low yields due to the Federal Reserve's easy money policy.

The seasonally adjusted amount of U.S. commercial paperdecreased for a fifth straight week to $964 billion outstanding inthe period ending Wednesday, according to Federal Reserve data.Corporations sell commercial paper, typically maturing in 270 daysor less, to fund everyday activities such as rent and salaries.

Declining demand from money-market funds, among the biggestbuyers of the debt, is curbing commercial-paper sales. Total assetsin the funds have fallen by $100 billion this year to $2.6 trillionon May 13, according to the Investment Company Institute. The totalhas dropped from $2.7 trillion on Dec. 31, the highest level sinceJune 2011.

“There is no point trying to be a hero at these yield levels, soinvestors are in a wait-and-see mode, waiting for rates to movehigher,” said Joseph Abate, a strategist at Barclays Plc in NewYork. “Money markets are shortening their exposure so investors arekeeping their powder dry until it becomes more attractive.”

The Fed is debating when to increase its benchmark interest ratefrom its current zero to 0.25 percent range as the economy showsuneven signs of growth. Fed officials last month didn't expect toraise rates at their next meeting in June even as they concludedthat a first-quarter economic slowdown was unlikely to persist,minutes of the meeting showed on Wednesday.

Commercial paper sold by non-U.S. financial institutions fell to$229.6 billion, the lowest level since the period ended August2014, while the amount issued by U.S.-based banks decreased by 6.8percent since last week to $256.6 billion, the smallest amount inabout a month.

Bloomberg News

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