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Post by jeffolie on Sept 20, 2007 16:22:57 GMT -6
Commercial Paper collapses for 6 straight weeks. Sept. 20 (Bloomberg) -- The U.S. commercial paper market shrank for a sixth week, extending the biggest slump in at least seven years and signaling Federal Reserve interest-rate cuts haven't yet drawn investors back to short-term debt. Short-term debt maturing in 270 days or less fell $48.1 billion in the week ended yesterday to a seasonally adjusted $1.87 trillion, including a $32.1 billion decline in financial firms' commercial paper. Asset-backed debt dropped $15.6 billion, according to the Fed in Washington. Commercial paper investments have declined $354.5 billion, or almost 16 percent, since the week ended Aug. 8, according to the Fed. The slump began in asset-backed paper and spilled into financial companies' short-term debt. Banks and other financial institutions have sold almost $14 billion of bonds and notes since Aug. 24, allowing them to pay off commercial paper. The buyers' freeze shut out borrowers including mortgage lenders Countrywide Financial Corp. and Thornburg Mortgage Inc. as well as GMAC LLC and investment company Cheyne Finance Plc. www.bloomberg.com/apps/news?pid=20601087&sid=a4qdfKzkKHX4&refer=home
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Post by unlawflcombatnt on Sept 20, 2007 17:02:34 GMT -6
Banks and other financial institutions have sold almost $14 billion of bonds and notes since Aug. 24, allowing them to pay off commercial paper.... If this refers to Treasuries, it might explain some of the increase in yields on Treasury notes and bonds. Their increasing the supply of Treasury notes (2yr - 10yr) and Treasury bonds (over 10yr) on the market. Increased supply drives prices down. Since bond/note yields are inversely related to price, it means yields would increase. In contrast, shorter-term Treasury bills (less than 2yr) have shown slight declines in yields, indicating a higher price-- from some combination of increased demand and/or decreased supply. If selling of the longer term Treasuries is greater than the shorter term Treasuries, it would cause yields to rise more on the longer-termed Treasuries. Which is exactly what appears to be happening with Treasury bonds over the last week. Over the last month, however, yields have increased on the shorter-term Treasuries as well.
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