Commercial paper market still smaller than 2003
Earlier today the Fed’s commercial paper data caught my eye – the nearly $70 billion surge in short-term borrowing in the latest week was hard to miss. At $1.3 trillion, the CP market is still a shadow of its former self. It peaked at $2.2 trillion in the summer of 2007 right before the bottom fell out of credit markets.
But that’s a good thing. Much of the growth during the boom came in the asset-backed part of the market, which subprime mania infected during the boom. When money market managers woke up to the fact that they may have exposure to subprime, they bailed, helping to spark a run on short-term markets that only buckets of liquidity from the central banks stopped.
It will be worrying if the surge in CP continues indefinitely, though, since we all know how dangerous it can be when companies become too addicted to cheap short-term borrowing. But for the moment, it doesn’t seem excessive. Even with the $234 billion expansion since the end of July, the market is still smaller than where it stood in 2003 at $1.35 trillion.