MONEY MARKETS-U.S. commercial paper outstanding falls

Thu Oct 11, 2012 1:08pm EDT

By Ellen Freilich

NEW YORK Oct 11 (Reuters) - U.S. seasonally adjusted commercial paper outstanding fell $10.2 billion in the week ended Oct. 10, according to data issued by the Federal Reserve on Thursday.

U.S. commercial paper outstanding, not seasonally adjusted, fell $10.7 billion in the week.

U.S. foreign bank commercial paper, not seasonally adjusted, rose $900 million.

Meanwhile, general collateral repo rates remained elevated as $100 million in Treasury bill auctions settled on Thursday and in anticipation of Monday's settlement of this week's set of coupon auctions.

The government sold a total of $66 billion in three- 10- 30-year Treasuries this week on Tuesday, Wednesday and Thursday, respectively.

BAILOUT PROSPECTS KEEP SPANISH REPO RATES STABLE

Meanwhile, the cost of borrowing cash using Spanish government bonds as collateral was little changed on Thursday as the prospect of European Central Bank debt purchases offset the impact of a downgrade of Spain's rating.

Standard & Poor's cut the country's rating to BBB-minus, with a negative outlook, just one notch above non-investment grade and in line with fellow agency Moody's, which is expected to conclude its own rating review this month.

Usually, when debt is downgraded, rates in repo markets - where bonds are used as collateral to borrow cash - go up. That is because the price of the bond falls and the value of the collateral is perceived as having depreciated.

However, the likelihood that Spain will eventually ask for a bailout kept markets stable.

"The rates which people are actually lending at have not changed much; (the S&P move) only brings it in line with Moody's ... and the market is much more focused on whether they're going to ask for a bailout or not," one repo trader said.

The one-week repo rate for trades using Spanish bonds as collateral was unchanged at 0.15-0.16 percent, according to traders.

A well-bid Italian debt auction also helped increase investors' appetite to take risks.

"Repo rates didn't move because in the short-term risk (sentiment) is still on and the Italian auction was fine," said Matteo Regesta, rate strategist at BNP Paribas.