NEW YORK (Reuters) – Credit rating agencies’ blunders in the global credit crisis highlight the need for more effective regulation, but the Securities and Exchange Commission may not prove an effective policeman, market analysts say.

Investors have blamed rating agencies, Moody’s Corp <MCO.N>, Standard & Poor’s <MHP.N> and Fitch Ratings <LBCP.PA>, as well as regulators, for the role they played in the global financial crisis. The top ratings that agencies assigned to toxic securities contributed to the severity of the market meltdown and the Obama administration wants to give the SEC more power to rein them in.

Many analysts believe the ratings model the big three agencies use is inherently flawed and susceptible to conflicts of interest because the issuer pays them to rate their products.

Key lawmakers agree that the SEC should write and enforce rules for the credit rating agencies and have proposed setting up an office within the SEC to do just that.

But experts are not convinced the SEC is up to the task, not least because of its catastrophic failure to spot Bernard Madoff’s $65 billion Ponzi scheme despite red flags and complaints.

“You want to convince me that the agency which allowed Madoff to run a giant Ponzi scheme could improve on what the credit agencies do?” said Zvi Bodie, a finance professor at Boston University’s School of Management.

The SEC had no comment.

NEW YORK, Nov 19 (Reuters) – The U.S. commercial paper market grew last week, resuming a three-month period of expansion after two weeks of contraction, Federal Reserve data showed on Thursday.

The reemergence of that trend could be a positive sign for the still fragile economic recovery, analysts said.

“We saw commercial paper and business loans collapse and now at least with commercial paper we are generally seeing some stabilization,” said Ray Stone, economist with Stone & McCarthy Research Associates, in Princeton, New Jersey.

“This is indicative of a moderation in the pace of inventory liquidation or perhaps an increase in inventories,” Stone said.”Either is good news for the economy.”

However, the market continues to signal that the economic recovery that is underway remains vulnerable to setbacks, analysts added.

For the week ended Nov. 18, the size of the U.S. commercial paper market, a vital source of short-term funding for companies’ daily operations, rose by $28.5 billion to $1.267 trillion outstanding, from $1.239 trillion last week.

The overall U.S. commercial paper market size is still well below its peak of $2.2 trillion outstanding in August 2007 when the credit crisis broke out.

NEW YORK (Reuters) – A sustained U.S. economic recovery is unlikely until all banks, and not just the big institutions bailed out with government funds, start to recover from the effects of the financial crisis, according to longtime investment strategist Don Coxe.

Many banks that got funding from the government have seen their shares soar, while smaller, regional banks have not.

That’s a sign that investors believe the smaller banks are less well placed to participate in, and contribute to, the economic recovery, said the chairman of Coxe Advisors LLC in Chicago, who advises clients of the BMO Financial Group.

Coxe said the economy will only grow when banks, and especially the smaller banks that are more likely to make loans to Main Street than Wall Street, lend more freely.

But regional and community banks are struggling in the wake of the global financial crisis and bank credit to businesses and consumers is contracting, he said in a report released this week.

“The thousands of regional U.S. banks on which an economic recovery depends have not participated in the sudden explosion of trading profits” of the biggest five U.S. banks, he said.

The state aid granted to large banks during the financial crisis has convinced investors the government will step in again in future to save the behemoths if needed. That has helped pull share prices back up from the 12-year lows hit in March.

NEW YORK (Reuters) – Even after this year’s meteoric rally, U.S. and European corporate bonds still offer value to income-oriented investors, a major asset management firm said on Friday.

“As of today we would say that there is still value in holding corporate bonds because the valuations are still attractive, although with a small ‘a’ rather than a big ‘A’,” said Andrew Milligan, head of global strategy with Standard Life Investments in Edinburgh in a telephone interview with Reuters.

Investors currently demand a much smaller premium for the risk of holding corporate bonds instead of safer government bonds than they did in late 2008.

U.S. investment grade corporate bond yield spreads over Treasuries have narrowed to 216 basis points as of Thursday, from record wides of 656 basis points at the height of investor panic in the financial crisis in December, according to Bank of America Merrill Lynch data.

Given the dizzying speed and magnitude of that 11-month rally, Milligan warned that investors are starting to buy corporate bonds as a long-term way of collecting income rather than as a short-term bet on capital appreciation.

“The rationale for holding them is changing” in both Europe and the United States, Milligan said. “It would not be a surprise that corporate bonds would become less attractive during the coming year simply because valuations will become less attractive as spreads tighten further,” he said.

Standard Life Investments has some $219 billion of global assets under management. Of that sum, $96 billion is invested in fixed income, roughly $37 billion of which is invested in corporate bonds.

NEW YORK, Nov 12 (Reuters) – The U.S. commercial paper market shrank for a second straight week, stalling a three-month expansion trend and hinting the economic rebound may not be as strong as thought, analysts said on Thursday.

For the week to Nov. 11, the commercial paper market fell $76.6 billion to $1.239 trillion outstanding from $1.315 trillion the previous week, Federal Reserve data showed.

Companies issue commercial paper to finance restocking of shelves and pay wages. As gross domestic product expanded in the third quarter, ending the long-running U.S. recession, the size of the commercial paper market grew as companies invested to meet an upturn in demand for their products.

Yet seasonal distortions in the data may have exaggerated the extent to which the market bounced back earlier, just as in the past two weeks the data may be exacerbating the depth of its relapse, analysts said.

“It’s down really big again, but the interesting thing is that on a non-seasonally adjusted basis the declines were tiny: only $7 billion,” said Ray Stone, economist with Stone & McCarthy Research Associates in Princeton, New Jersey.

A year ago, the Federal Reserve — the U.S. central bank – stepped in to underpin the market, which was nearly paralyzed in the wake of Lehman Brothers’ September collapse.

The Fed’s efforts helped to revive activity around this time last year, a factor which is likely distorting the past two weeks’ data, Stone said.

NEW YORK, Nov 9 (Reuters) – U.S. Federal Reserve Governor Daniel Tarullo on Monday endorsed the idea of requiring big banks to hold more capital and renewed his suggestion that direct efforts to limit the size of banks may be worth considering.

Fed Chairman Ben Bernanke and other officials have raised the idea of a capital surcharge to prevent banks from getting so big that the government is compelled to prop them up in a crisis.

The idea “has substantial appeal,” Tarullo said in remarks prepared for a speech at New York University.

Tarullo did not comment on the outlook for the economy or interest rates in a speech on financial regulation.

The Fed governor said that in the debate over reforms to prevent a repeat of the recent financial meltdown, policy-makers could also focus on changes to the structure of the financial system as well as regulations.

He said both regulators and the financial industry were to blame for the crisis.

He renewed his suggestion that directly limiting the size of financial institutions may have merit.

NEW YORK, Oct 29 (Reuters) – The U.S. commercial paper market rose for an 11th straight week, Federal Reserve data showed on Thursday, reflecting a broader credit market recovery as the economy started to rebound from a long recession.

In one of many signs that credit markets are repairing themselves in the aftermath of the global financial crisis, the commercial paper market is flowing much more smoothly than a few months ago, analysts say.

“The commercial paper market is in the healing process and consistent with the rest of the recovery we’re seeing,” said Howard Simons, strategist with Bianco Research in Chicago. The U.S. central bank stepped in to rescue the market from a frozen state last year.

This is now the longest-running expansion of the market for commercial paper — a vital source of short-term funding for daily operations at many companies — since May and June 2007, before the credit crisis began. Cumulative gains in the past 11 weeks are $302 billion, or a 28 percent increase in the size of the market, noted Tony Crescenzi, market strategist and portfolio manager with Pacific Investment Management Co, in a research note.

Companies are issuing commercial paper to finance restocking shelves and to meet an upturn in demand, analysts said.

“It’s a good sign,” said Howard Simons, strategist with Bianco Research in Chicago. “It’s consistent with things like inventory restocking.”

For the week ended Oct. 28, the size of the U.S. commercial paper market rose by $10.6 billion to $1.377 trillion outstanding from $1.366 trillion outstanding the previous week.

NEW YORK (Reuters) – Banking on a sustained recovery, some investors are switching out of corporate bonds into dividend-paying stocks, but if a second recession ensues, those bets could turn bad.

In a double-dip recession, which some analysts fear may happen next year, more companies may be forced to start cutting dividends, as happened in the recent economic crisis.

If that went hand in hand with steep falls in stock prices, corporate bonds might be a safer place to be than dividend stocks, especially if inflation were subdued, analysts said.

“If you get a sell off, the stability of that dividend will be put in question,” said William Larkin, portfolio manager with Cabot Money Management. “If we get a double dip, people will price in that those dividends are going to be cut.”

In that scenario, high yield bonds would likely beat dividend stocks returns, provided the default rate for such bonds continues to fall, Larkin added.

Such risks have not stopped bond investors plunging into stocks, on confidence in a sustained economic recovery, and fears of inflation — the bete noire of debt markets.

FOOLS RUSH IN?

NEW YORK (Reuters) – Regional economic reports on Monday suggested the U.S. economy has clambered back to levels associated with the end of recession, but recovery will be patchy and may prove fleeting.

Economic activity and manufacturing data for the U.S. Mid West and Texas hinted the impact of the global financial crisis is slowly abating as the economy emerges from the longest recession in 70 years.

However, an index of national economic activity slipped on a monthly basis and a Texas manufacturing output index fell.

“Those kind of reports tend to support the argument that this recovery will be more uneven and less V-shaped, but with the caveat that these are somewhat narrow regional surveys,” said Kevin Flanagan, fixed-income strategist for global wealth management with Morgan Stanley in Purchase, New York.

The indices preceded gross domestic product results on Thursday, the broadest measure of economic health, likely to confirm widely-held views the United States returned to growth in the third quarter. The data is a key focus in markets.

“This week, the most important report is Thursday’s GDP release…which is expected to show one of the more robust readings we have seen in the last few years and will give rise to the notion statistically speaking that the Great Recession has ended,” Flanagan said.

According to the median forecast of economists polled by Reuters, the U.S. economy grew 3.3 percent in the third quarter after shrinking 0.7 percent in the second quarter.

NEW YORK, Oct 22 (Reuters) – The U.S. commercial paper market expanded for a 10th straight week, adding to evidence of economic recovery from a U.S. recession that began in December 2007, Federal Reserve data showed on Thursday.

The commercial paper market, which the U.S. central bank had to rescue from a deep freeze last year, is flowing much more smoothly than a few months ago, analysts say.

For the week ended Oct. 21, the size of the U.S. commercial paper market, a vital source of short-term funding for daily operations at many companies, rose by $39.9 billion to $1.366 trillion outstanding, from $1.326 trillion the previous week.

“This is some indication that things are working again, that borrowers are tapping the commercial paper market and that it is serving the function it is supposed to,” said Ray Stone, economist with Stone & McCarthy Research Associates, in Princeton, New Jersey.

The overall U.S. commercial paper market peaked at about $2.2 trillion outstanding in August 2007 before being dramatically eroded in the credit crisis.

The incipient recovery of the commercial paper market over the past two months “is also reflective of a macro economic phenomenon,” Stone said. “The inventory liquidation drag on gross domestic product is running its course,” he added.

Asset-backed commercial paper outstanding rose by $5.9 billion after a rise of $11.3 billion the previous week.