Commercial paper market recovered

Sales of longer-term commercial paper soared 10-fold, a sign that the Fed's efforts toward unlocking the market may be working.

The Fed’s move as I wrote in my blog several days ago is helping to free up money for investors to place in other assets and it is also reducing the corporate sector's dependency upon bank credit, freeing up money for the inter-bank market.
The commercial paper market shrunk by $366 billion, or one- fifth, to a three-year low of $1.45 trillion from Sept. 11 to Oct. 22, its worst slump on record. During the last recession seven years ago, the commercial paper market declined 17 percent from its then peak in December 2000 to September 2001.

The surge in borrowing longer-term means more issuers, especially financial companies, will have fewer funding concerns through the end of the year. In money market, LIBOR rate fell another 5 bps today, its 13rd straight decline. This rate has dropped 140 bps since Oct. 10, when it rose to a record high 4.82 percent. Ted spread remains 192 bps, up from 80 bps three months ago.

Sentiment has improved given easing in commercial paper market, money market and measures taken by the central banks. But rates are still not back to normal levels as there's still concern that people would rather keep cash for themselves than blow their balance sheets again as year-end approaches.