The commercial paper market, used by companies to finance payroll and other daily expenses, is still largely frozen despite upbeat comments yesterday from General Electric chief Jeffrey Immelt.
Commercial paper traders said yesterday that, while some companies have been able to access very short-term loans in the last two days, most investors remained unwilling to buy anything that matures in more than a month.
Immelt sparked some hope yesterday during a conference call with investors to announce a 22 percent drop in GE’s quarterly earnings. “We’ve had no problems with our own [commercial paper],” he said, although he added that the company had reduced its reliance on CP.
This week, the Fed led central banks worldwide in an unprecedented cut in global interest rates in an attempt to thaw the short- term debt markets. That sparked a 0.57 percentage point drop, to 1.78 percent, on the highest-rated one-day commercial paper yesterday, according to Bloomberg data.
But most investors are still waiting to see the details of a larger plan by the Fed to purchase commercial paper directly from companies trying to access the market.
“The CP market is still for the most part shut down so we’re still in a very fragile state,” said Deutsche Bank’s chief US economist Joseph LaVorgna. “Until we see the details of the Fed program, the market will continue to be frozen and the fear will be present.”
Money market mutual funds, one of the largest investors in commercial paper, continue to worry that they won’t be able to get out of their positions if clients begin redeeming their cash.
“There is no secondary market right now for commercial paper, and the Fed should consider buying CP directly from investors to inject some liquidity into this market,” said one CP trader at a large bank.
“We have to do more on commercial paper. I don’t know any institution that will buy more than overnight money,” said Blackrock Founder Larry Fink yesterday at a conference hosted by The Wall Street Journal.