US commercial paper market shrinks to 10-month low

[NEW YORK] The US commercial paper market contracted to its smallest in more than 10 months in the latest week, prompted by reduced demand for bank debt from domestic money market funds, Federal Reserve data showed on Thursday.

The amount of US commercial paper outstanding fell by US$11 billion to US$1.012 trillion in the week ended Aug 17 This was the lowest level since US$957.84 billion in the week of Sept 30, 2015.

Non-seasonally adjusted commercial paper outstanding - which some analysts consider a more reliable reading than the seasonally adjusted one since it has been distorted by the financial crisis - declined US$14.6 billion to US$1.019 trillion. The latest non-seasonally adjusted figure was the lowest since US$1.017 trillion in the week of Jan 27.

US non-seasonally adjusted financial commercial paper outstanding fell to US$490.19 billion, which was the lowest since early January, from US$504.27 billion in the prior week.

Foreign financial commercial paper outstanding contracted to US$247.11 billion in the latest week. That was the lowest since the week of June 28, 2015, when it was US$244.88 billion, according to Fed data.

Some US prime money market funds, which had been major holders of commercial paper, have changed over to hold only government bonds. The move allows them to be exempt from US Securities and Exchange Commission rules that will take effect on Oct 14. As a result, they have been reducing their holdings of commercial paper and other short-term debt from banks.

This final phase of money fund reform is intended to safeguard a sector that was rattled by the collapse of Lehman Brothers during the global credit crunch in September 2008.

REUTERS