Friday, March 2, 2012

Whither Commercial Paper?

So it has been awhile since I took a look at commercial paper, so I wandered over to the FRB Outstandings web site to take a look... this is the non-seasonally adjusted (NSA) weekly data in a 4 week moving average (MA).

So the recovery begins more or less where the total outstanding amount approximatley flatlines after the kickoff with the epic ablation of asset backed commercial paper.

NSA data is well suited for looking at year over year changes, so we'll start looking at the year over year change in the 4 week MA of the total amount of commercial paper outstanding on a NSA basis.

As we can see, the total amount of outstanding commercial paper began to decline on a year over year basis around the end of 3Q2011.

Commerical paper is a 1 to 270 day promissary note, broadly bucketed into three categories: financial, asset backed and non-financial in order of amount outstanding. Financial commercial paper is issued by financial institutions of varying stripes, non-financial is any other type of institution and typically used to finance inventories, while asset backed commercial paper is issued from a bankruptcy remote SPV that sells the paper to purchase the assets from the financial institution (general descriptions, anyone who would like to add to that please do so in the comments). So a year over year look at the different categories:

We see that:
1. Asset backed commercial paper has yet to go positive on year over year basis since the onset of the Great Recession
2. Financial commericial paper went negative on a year over year basis around the end of 3Q2011
3. Non-financial commercial paper is showing strong growth on a year over year basis, though that appears to be decelerating

The strength of the non-financial commericial paper is encouraging, given its place in the real economy. However, in the onset of the Great Recession we saw that it was the last of the categories of commercial paper to decline on a year over year basis, and it currently constitutes 18% of the outstanding amount.

So what do you think this means?

1 comment:

tekewin said...

One possibility is that nobody trusts banks. Banks have to get their operating cash flow from central banks. Hence, LTRO1 and LTRO2. I know many mutual funds were dumping Euro paper last year.