Corporate short-term borrowing costs plunged after the Federal Reserve accelerated efforts to unlock the commercial paper market by providing loans to money-market funds that buy the debt.
Rates on the highest-ranked 30-day commercial paper dropped 1.46 percentage points, the most on record, to 1.92 percent, according to yields offered by companies and compiled by Bloomberg. Rates on overnight and 90-day paper also declined.
The Fed committed yesterday to provide as much as $540 billion in loans to relieve pressure on money-market funds, its third action since the bankruptcy of Lehman Brothers Holdings Inc. contributed to the credit freeze that threatens to tip the economy into a prolonged recession. The money-market and commercial-paper backstops are ``having a major effect,'' Tony Crescenzi, chief bond-market strategist at Miller Tabak & Co. LLC in New York, wrote today in a note to clients.
``It's almost completely backstopped now, both by the private sector and the Federal Reserve, and rates should fall in line,'' Crescenzi said in an interview.
Commercial paper, which typically matures in 270 days or less, is used by companies to finance payroll, rent and other daily expenses.
JPMorgan Chase & Co. will run five special units that will buy certificates of deposit, bank notes and commercial paper issued by highly rated financial companies with a remaining maturity of 90 days or less under the Market Investor Funding Facility.
New York Fed
Borrowers were able to begin registering Oct. 20 for the Commercial Paper Funding Facility, which the Federal Reserve Bank of New York created Oct. 7 to inject liquidity into the market and ensure companies can borrow short-term debt.
On Sept. 19, the Fed created a program to allow banks to buy commercial paper backed by assets from affiliated money market funds and exempted banks from capital requirements related to holding the debt.
Rates on overnight commercial paper fell 4 basis points to a record low 0.74 percent, while 90-day yields declined 18 basis points to 3.31 percent, Bloomberg data show.
The cost of borrowing in dollars in London for three months fell for an eighth day. The London interbank offered rate, or Libor, that banks charge each other for the loans dropped 29 basis points to 3.54 percent, according to the British Bankers' Association. A basis point is 0.01 percentage point.
