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Commercial paper rates fall, signaling Fed's program working

Published 03/30/2020, 11:09 AM
Updated 03/30/2020, 11:10 AM
© Reuters.

By Kate Duguid

NEW YORK (Reuters) - Rates on U.S. short-term corporate loans fell on Friday, suggesting that the Federal Reserve's intervention to return liquidity to the market has begun working, according to data released on Monday morning by the central bank.

The rate at which nonfinancial companies could borrow lower-grade commercial paper on Friday - as the short-term loans are known - fell at every maturity. For higher-grade paper, rates fell at every maturity except 30 days.

Friday's data represents the most consistent fall in those rates across the quality spectrum since March 4. It suggests that there has finally been a return of some liquidity to the market since the Fed on March 17 said that it would reinstate the Commercial Paper Funding Facility (CPFF), an operation used during the 2008 financial crisis, in which the central bank acts as a lender of last resort for companies otherwise unable to borrow in the short-term market.

The overnight borrowing rate for lower-grade nonfinancial paper fell to 2.53%. For overnight higher-grade nonfinancial paper it fell to 0.13%, which it had also hit on Thursday, the lowest since 2015.

The spread between the two rates, a measure of how risky investors believe the lower-grade paper is over its higher-grade equivalent, was 240 basis points. It had hit 264 basis points on March 20, its highest since 2008.

 

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