Wanted: a roll of 2-ply commercial paper

Problems with the commercial paper market are back.

It seems the markets are once again throwing up thin trade-sheets of commercial paper, and its making a mess of things. You don't want your fingers poking through credits when you're relying on asset-backed paper.

Commercial Paper Market Roiled

The U.S commercial paper market shrank by a whopping $52.1 billion in a week of financial turmoil where investors shied away from investing in short-term debt, according to data released by the Federal Reserve Thursday.

according to a note from Moody's Credit Trends, "Any further significant erosion to the commercial paper market would remove or raise the cheapest borrowing options available to many corporations,"

On Thursday morning, investors -- mostly money market funds -- are not buying commercial paper, according to a trader at a primary dealer.

"There is a buyers' strike," he said, adding that these funds are holding back on buying commercial paper "in anticipation of redemptions." In the asset-backed corner of the market, funds have begun "pulling money out."

Money has flowed out of money market funds this week as investors fear that their funds may not even be safe in what had been considered an equivalent to cash. Sparking concerns this week were troubles at the Primary Fund, a $62 billion money market fund that is part of the Reserve Fund, that "broke the buck" -- or had the value of its shares fall below par -- on Tuesday.

Guambat recalls an old slur, "as useless as John Wayne toilet paper". What's that, you ask? Well, John Wayne wouldn't take sh!t off nobody.



MORE LATER:

Oct 2 (Reuters) - The U.S. commercial paper
market contracted dramatically for a third straight week as
business lending and borrowing effectively shut down, Federal
Reserve data showed on Thursday.
The weekly drop was the largest in at least seven years for
commercial paper, which is a vital source of short-term funding
for daily operations at many companies. Over a quarter of the
market has disappeared since the start of the global credit
crisis in the summer of 2007.
For the week ended Oct. 1, the size of the U.S. commercial
paper market fell by $94.9 billion to $1.607 trillion, from
$1.702 trillion the previous week, Federal Reserve data showed.
That brings the cumulative shrinkage of this market to $208
billion in the last three weeks, including the previous week's
$61.0 billion fall.
"There is almost no area of credit markets or even of the
banking system where companies are raising money -- banks are
not lending, it's just unbelievable," said Tony Crescenzi,
chief bond market strategist, Miller, Tabak & Co. in New York.
And the dire situation for company funding could get worse,
Crescenzi warned.
"Commercial paper matures on average within 30 days to 45
days. There are lot of rollovers to come. It could be very,
very problematic if this isn't fixed soon," he said.
"This is a direct link between the credit market turmoil
and the real economy," said Lou Brien, market strategist at DRW
Trading in Chicago.
As an example of how the lock-up in commercial paper is
hurting companies, the Wall Street Journal reported on Thursday
that USA Today publisher Gannett Co Inc had drawn on a
$3.9 billion credit line due to the stalled short-term credit
markets.