Archive for September 14th, 2007
Commercial Paper
The siezing up of commerical paper–more specifically asset backed commercial paper–has been one of the large problems in the past two months. Now I could not find the video from bloomberg but they had someone on who was saying that the amount projected to be involved in sub-prime loans is around 300 billion dollars worth. He then stated that thats roughly how much the commercial paper market has lost in the past few weeks. This is an argument of a more orderly market in the commercial paper sector and given the signals it seems as though this analysis is in fact right. As we can see by the data provided by the Federal Reserve,
Discount rates
| Term | AA nonfinancial |
A2/P2 nonfinancial |
AA financial |
AA asset-backed |
|---|---|---|---|---|
| 1-day | 4.98 | 5.51 | 4.93 | 5.54 |
| 7-day | 4.95 | 5.91 | 5.05 | 6.14 |
| 15-day | 5.00 | 5.85 | 5.07 | 6.14 |
| 30-day | 4.99 | 5.95 | 5.17 | 6.30 |
| 60-day | 4.90 | 5.97 | 5.38 | 6.10 |
| 90-day | 4.97 | 5.82 | 5.43 | 6.17 |
Yields are slowly coming back down as a sign of people are begining to buy again. The news out of Countrywide today also confirms this. In addition, according to USA Today , “Freddie Mac, the mortgage company, reported Thursday that 30-year, fixed-rate mortgages averaged 6.31% this week, the lowest level since May 17. The rate had been 6.46% last week.” Going on to say that it is now at 6.21% as of today.
Then you have the FT saying, “Fresh data from the Federal Reserve showed the pace of contraction in commercial paper slowed in the past week, as the market shrank $8.2bn to $1,917bn. The fall was concentrated in asset-backed commercial paper while other types of commercial paper saw some growth.”
This data makes me change my mind about the Fed cutting 50 basis points. However, we still have retail sales to deal with which I will be covering tomorrow.
