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Thursday, September 13, 2007

Commercial Paper Update

Commercial Paper Outstanding:

The good news is that non-financial is not tanking. Asset-backed continues to decline, and risk premiums are slowly mounting. The discount rate spread is creeping up toward 100 basis points (1 percent):

Treasuries stabilized somewhat yesterday, but the low yield remains at two years. I am not sure how much of an effect a Fed cut will have on risk premiums and/or liquidity problems related to risk (it will, of course, have a stimulative effect generally, helping to offset the drag on the wider economy from the industries most affected).

We got through that hump of maturing asset-backed commercial paper that was causing such woe. However, given some of the stuff I've heard, the problems might have been deferred and/or swept under the rug rather than resolved.

Weekly unemployment data was not intimidating. Initial claims only rose to 319,000 from last week's initially reported 318,000 (revised down to 315,000 this week). Far more important, the number of continuing claims actually dropped, although they are a week behind initial and next week's continuing claims will be the important number. I would say that the Fed might be rethinking that rate cut based on what they are seeing.


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