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Commercial Paper Market Begins to Stabilize

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In a very positive sign that the credit crunch may be easing, the volume of asset-backed commercial paper grew after declining for 20 straight weeks. Companies issue asset-backed commercial paper to fund short-term operations. The market slowed down this summer because a lot of Structured Investment Vehicles had been issuing short-term paper to fund their investments in sub-prime mortgage-backed securities. That led to a lot of skepticism about the market. The fact that the volume is going up, then, is a step in the right direction.

Still, analysts are preaching caution.

Analysts said the first sign of stabilisation in the market since the summer was good news. But there was a sense of caution given the low volumes over the year-end period and a big seasonal swing. The non-seasonally adjusted rise in ABCP last week was $8.3bn.

“This is a short term respite,” said George Goncalves, chief Treasury strategist at Morgan Stanley. “We still expect the market will ultimately return to its 2005 level of between $650bn and $700bn.”

He added that it was difficult to expect strong growth in the market unless the economy gathered speed.

Since late July, the ABCP market has declined from a peak of $1,200bn as the credit crunch sparked a buyers' strike for short-term paper backed by mortgages and other vulnerable assets.

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Elaine Misonzhnik

Senior associate editor Elaine Misonzhnik has been writing for National Real Estate Investor since June 2006 and has covered commercial real estate for more than 12 years. She first became...
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