Corporate lending

Yields on the highest ranked 30 day commercial paper stood today at 2.88% as the Federal Reserve began a program in which it will purchase commercial papel directly from private companies. This marks an unprecedented move by the U.S. central bank to cope with the freeze in corporate lending after the Lehman Brothers collapse took commercial papel yields to an average 4.28%. Now, with the FED ready to buy commercial paper, yields have come back down to 2.88% which represents a risk premium over the FED Funds rate of 138 basis points.

However, this action might not prevent a further contraction in commercial papel issuance. For the sixth consecutive week, companies reduced short term borrowing. Overall, it now stands at $1.45 trillion, roughly 35% less compared to August 2007 when corporate lending reached a peak $2.22 trillion high.