* Companies lock low rates with longer-term debt
* Tough proposals seen paring commercial paper appetite
* Commercial paper outstanding shrinks 3rd straight week
By Richard Leong
NEW YORK, March 1 The U.S. commercial
paper market is under pressure as companies issue longer-dated
debt to lock in historically low interest rates rather than
relying on short-term debt.
Uncertainties about the future of the $2.6 trillion U.S.
money fund industry, which is a major buyer of commercial paper,
might have also caused corporations to refrain from issuing the
short-term debt, analysts and investors said on Thursday.
"With long rates this low, you are seeing corporations
terming out their debt to get rid of their rollover risks," said
Bret Barker, portfolio manager at TCW, which oversees nearly
Analysts expect investment-grade corporate bond supply to
flirt with the $100 billion mark in March, according to IFR, a
unit of Thomson Reuters. In February, companies raised $97.2
billion through high-grade debt sales.
On the other hand, U.S. commercial paper outstanding fell
$45 billion in February to $927.2 billion on a seasonally
adjusted basis, according to U.S. Federal Reserve data released
The size of the commercial paper market, which companies
rely on to finance payrolls, inventories and daily operations,
contracted for a third straight week.
Also, companies are wary of relying on commercial paper for
cash as the money market funds, which own roughly one-half of
the short-term debt, face tough reform proposals.
"There are still questions about money market funds," TCW's
The proposed overhaul of the funds that includes letting
share value float could reduce appetite for commercial paper and
other debt seen riskier than U.S. government paper, analysts
The money fund industry has argued against more regulatory
changes, aimed at averting the same turmoil that hit the sector
after the collapse of Lehman Brothers in September 2008.
Fidelity Investments, the biggest U.S. money fund sponsor,
in a letter to the Securities and Exchange Commission, said
proposals that include requiring more capital and placing
restrictions on investor redemptions would be disruptive to the
money fund industry. They would put even greater strain on the
federal guarantees that back bank deposits.
"In particular, we continue to believe that proposals such
as floating (net asset value), imposing onerous capital
requirements or adding burdensome redemption restrictions will
ultimately destroy the money market fund industry," said
Fidelity. Its money funds have about $432 billion in assets.