ABCP performance decouples from commercial paper
Asset-backed commercial paper performance suffered last week despite a rise in levels outstanding for total commercial paper, according to traders at Credit Suisse (CS). Total U.S. commercial paper outstanding increased by $10.4 billion last week to hit $1.17 trillion. However, U.S. ABCP outstanding decreased $2.6 billion from the prior week to $382.4 billion. The traders would not immediately comment as to whether the occurrence is likely to reverse course in the near term, though provided some reason to the event. "Last week, investors had more cash available to invest and were keen on extending into the term market despite tight pricing," the Credit Suisse trading note states. "This week investors went in the opposite direction, with many staying short in the overnight market and missing out on the extra yield pick up that could have been achieved by extending their maturities out longer." Commercial paper is unsecured promissory notes from banks, usually with short maturities. CP is used to fund the day-to-day operating expenses at banks. ABCP is collateralized short-term notes by contrast, though the assets are held in a special purpose vehicle. The amount of commercial paper outstanding is generally viewed as a barometer for the general health of the money market product. After years of declines, commercial paper increased more than 11% over year-end 2010 and the highest level since December 2009. However, as the chart below illustrates, ABCP is not improving. (Click on chart to expand.) Write to Jacob Gaffney. Follow him on Twitter @JacobGaffney.