Post by jeffolie on Nov 23, 2007 17:14:03 GMT -6
Asset-Backed Commercial Paper Falls for 15th Week (Update1)
By Fabio Alves
Nov. 23 (Bloomberg) -- The U.S. asset-backed commercial paper market fell for a 15th week as rising losses from mortgage-related securities prompted investors to avoid buying the short-term debt.
Debt maturing in 270 days or less and backed by mortgages, credit-card loans and other assets fell $17.5 billion, or 2 percent, to a seasonally adjusted $835.8 billion for the week ended Nov. 21, the Federal Reserve in Washington said today.
The market has shrunk 29 percent since its peak on Aug. 8 of $1.18 trillion, as record defaults on subprime mortgages caused buyers to shun new asset-backed commercial paper from structured investment vehicles including Cheyne Finance and Rhinebridge Plc. The market had shown signs of stabilizing after falling by less than $600 million last week, the smallest contraction since the declines began in August.
This week's drop is ``a disappointment,'' said Jill King, a senior portfolio manager at Chicago-based Horizon Cash Management who oversees about $3 billion in fixed-income assets. ``Appetite for these securities has diminished because of all the news.''
The inability of SIVs to sell new paper is at the root of the market declines, according to King. Investors have also fled amid at least $50 billion in credit-related writedowns at banks and securities firms including Merrill Lynch & Co. and Citigroup Inc., as well as record losses at Fannie Mae and Freddie Mac.
``If market sentiment remains weak, appetite for asset-backed commercial paper will also remain weak,'' said Christian Stracke, an analyst with CreditSights in London.
The broader commercial paper market fell $20.9 billion in the most recent week to $1.84 trillion, the third straight drop, according to the Fed data.
Tighter Lending
Freddie Mac, which owns or guarantees one in five U.S. home loans, this week reported a record net loss of $2.02 billion, following a $1.39 billion loss at Fannie Mae. Fewer reserves at the two government-chartered companies, as well as deterioration at bond insurers and commercial lenders including Countrywide Financial Corp., may limit banks' ability to make new loans, Bank of America Corp. said Nov. 21.
``Lending is getting tighter and tighter,'' said Mary Beth Fisher, an interest-rate strategist at UBS AG in Stamford, Connecticut. ``You're going into year-end and some volatile earnings reports, plus financial companies are writing down assets, so they're going to end up needing more capital for themselves and for their clients.''
Companies typically sell commercial paper, which usually matures in three months or less, to help pay for day-to-day expenses including payroll and rent. Banks and hedge funds set up structured investment vehicles to issue short-term debt and use the money to invest in longer-term assets including bonds and mortgage-backed securities.
SIVs
SIV holdings have fallen at least $75 billion since July to $320 billion as the companies were unable to borrow. The net asset value of SIVs has fallen to 69.7 percent from 100 percent in July, according to Fitch Ratings.
Citigroup Inc., the largest manager of SIVs, along with JPMorgan Chase & Co. and Bank of America on Nov. 12 reached an agreement on the structure of an $80 billion fund to buy SIV assets and revive the market for short-term debt. The banks plan to have the fund in place by year-end.
``This fund has a long way from getting ramped up to its target size,'' Stracke said.
Rising Rates
Interest rates on 30-day asset-backed commercial paper widened to 5 percent on Nov. 21, or about 20 basis points more than the one-month London interbank offered rate, compared with a gap of 58.5 basis points on Aug. 28, the widest this year, Bloomberg data show. In the first half of 2007, one-month Libor was on average 5 basis points wider. A basis point is 0.01 percentage point.
``Rising rates are a reflection of general credit concerns,'' Stracke said.
Yields on three-month Treasury bills have tumbled at least 85 basis points this month to a 12-week low of 3.05 percent, signaling increasing demand for safer assets.
www.bloomberg.com/apps/news?pid=20601009&sid=aecDLCpZk8lQ&refer=bondheads
By Fabio Alves
Nov. 23 (Bloomberg) -- The U.S. asset-backed commercial paper market fell for a 15th week as rising losses from mortgage-related securities prompted investors to avoid buying the short-term debt.
Debt maturing in 270 days or less and backed by mortgages, credit-card loans and other assets fell $17.5 billion, or 2 percent, to a seasonally adjusted $835.8 billion for the week ended Nov. 21, the Federal Reserve in Washington said today.
The market has shrunk 29 percent since its peak on Aug. 8 of $1.18 trillion, as record defaults on subprime mortgages caused buyers to shun new asset-backed commercial paper from structured investment vehicles including Cheyne Finance and Rhinebridge Plc. The market had shown signs of stabilizing after falling by less than $600 million last week, the smallest contraction since the declines began in August.
This week's drop is ``a disappointment,'' said Jill King, a senior portfolio manager at Chicago-based Horizon Cash Management who oversees about $3 billion in fixed-income assets. ``Appetite for these securities has diminished because of all the news.''
The inability of SIVs to sell new paper is at the root of the market declines, according to King. Investors have also fled amid at least $50 billion in credit-related writedowns at banks and securities firms including Merrill Lynch & Co. and Citigroup Inc., as well as record losses at Fannie Mae and Freddie Mac.
``If market sentiment remains weak, appetite for asset-backed commercial paper will also remain weak,'' said Christian Stracke, an analyst with CreditSights in London.
The broader commercial paper market fell $20.9 billion in the most recent week to $1.84 trillion, the third straight drop, according to the Fed data.
Tighter Lending
Freddie Mac, which owns or guarantees one in five U.S. home loans, this week reported a record net loss of $2.02 billion, following a $1.39 billion loss at Fannie Mae. Fewer reserves at the two government-chartered companies, as well as deterioration at bond insurers and commercial lenders including Countrywide Financial Corp., may limit banks' ability to make new loans, Bank of America Corp. said Nov. 21.
``Lending is getting tighter and tighter,'' said Mary Beth Fisher, an interest-rate strategist at UBS AG in Stamford, Connecticut. ``You're going into year-end and some volatile earnings reports, plus financial companies are writing down assets, so they're going to end up needing more capital for themselves and for their clients.''
Companies typically sell commercial paper, which usually matures in three months or less, to help pay for day-to-day expenses including payroll and rent. Banks and hedge funds set up structured investment vehicles to issue short-term debt and use the money to invest in longer-term assets including bonds and mortgage-backed securities.
SIVs
SIV holdings have fallen at least $75 billion since July to $320 billion as the companies were unable to borrow. The net asset value of SIVs has fallen to 69.7 percent from 100 percent in July, according to Fitch Ratings.
Citigroup Inc., the largest manager of SIVs, along with JPMorgan Chase & Co. and Bank of America on Nov. 12 reached an agreement on the structure of an $80 billion fund to buy SIV assets and revive the market for short-term debt. The banks plan to have the fund in place by year-end.
``This fund has a long way from getting ramped up to its target size,'' Stracke said.
Rising Rates
Interest rates on 30-day asset-backed commercial paper widened to 5 percent on Nov. 21, or about 20 basis points more than the one-month London interbank offered rate, compared with a gap of 58.5 basis points on Aug. 28, the widest this year, Bloomberg data show. In the first half of 2007, one-month Libor was on average 5 basis points wider. A basis point is 0.01 percentage point.
``Rising rates are a reflection of general credit concerns,'' Stracke said.
Yields on three-month Treasury bills have tumbled at least 85 basis points this month to a 12-week low of 3.05 percent, signaling increasing demand for safer assets.
www.bloomberg.com/apps/news?pid=20601009&sid=aecDLCpZk8lQ&refer=bondheads