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SOURCE: Bloomberg

In this article by author Mark Pittman on Sept. 27 we learn that the decline in the U.S. commercial paper market slowed last week, after the Federal Reserve cut mortgage interest rates to shore up confidence in the credit markets.

"The commercial paper market is not deteriorating as fast as it was in August, but as long as outstandings continue to fall, it is not out of the woods yet," Christopher Low, chief economist at FTN Financial in New York, wrote in a note to clients. "It's still more accurate to say the patient is less sick than to say the patient is recovering."

Asset-backed commercial paper has fallen $270.5 billion, or 23 percent since Aug. 8 to $912 billion after seasonal adjustments, according to the Fed.

Commercial paper is bought by money market funds and mutual funds that invest in short-term debt securities. In asset-backed commercial paper, the cash is used to buy mortgages, bonds, credit card and trade receivables, as well as car loans. Some of the programs are backed by subprime loans, issued to borrowers with poor credit or high debt.

The amount of commercial paper for all categories is now at its lowest since the week ended Aug. 30, 2006. Asset-backed commercial paper, at $912 billion, is at its lowest since May 31, 2006.

The Fed lowered its federal funds rate to 4.75 percent earlier this month as companies lost access to the credit markets.

The "tightening of credit conditions has the potential to intensify the housing correction and to restrain economic growth more generally,'' the Fed said in its statement.

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