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The premiums of short-term commercial paper (CP) yields over risk-free rates surged this week to levels that corporate treasurers haven’t seen since the 2008 financial crisis. Some of the largest and best-known U.S. companies were reported to be drawing down lines of credit in response to the stress in the CP market. The Federal Reserve responded quickly, creating a Commercial Paper Funding Facility (CPFF) with the goal of supporting the ongoing flow of credit to consumers and businesses.
However, a new report from Fitch Ratings indicates that investment-grade U.S. businesses continue to have access to the liquidity they need. The report recognizes that the cost of funding in the CP market has spiked, and that some companies are drawing on revolvers to repay their maturing CP. “We acknowledge companies will be trading into slightly more expensive but longer-tenored debt,” Fitch says.
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