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U.S. commercial paper supply posts steepest two-week drop since 2014

Kitco News

NEW YORK (Reuters) - The amount of U.S. commercial paper outstanding posted its biggest two-week fall in 3-1/2 years as financial companies reduced their issuance of short-term debt for a third straight week, Federal Reserve data released on Thursday showed.

Analysts blamed the fall in commercial paper supply on reduced borrowing by companies and investors keeping their cash at quarter-end for financial reporting.

Short-term activity in the wholesale funding market has picked up this week with the start of the new quarter, analysts said.

“It was pretty much quarter-end related,” said Scott Skyrm, executive vice president of Curvature Securities LLC in Gladstone, New Jersey. “Cash is coming back into the market each day.”

Banks and other financial firms use commercial paper to fund loans and securities holdings, while large manufacturers issue CP to finance their inventories and payrolls.

Money market funds and other cash investors are CP large holders.

Non-seasonally adjusted commercial paper outstanding decreased by $25.4 billion to $1.066 trillion in the week ended July 4. Some analysts consider this figure a more reliable reading because the seasonally adjusted one has been distorted by the 2007-2009 global credit crisis.

Over two weeks, commercial paper supply fell by $59.5 billion, which was the most since a $76.2 billon fall in the last two weeks of 2014.

Adjusting for seasonal factors, commercial paper outstanding decreased $20.2 billion to $1.065 billion in the latest week.

Non-seasonally adjusted financial CP outstanding fell by $19.3 billion, which included an $11.4 billion reduction among foreign banks and other financial institution.

Total non-financial CP, not adjusted for seasonal factors, declined by $6.8 billion in the latest week.

Last Friday, which was the last business of the second quarter, money funds and other investors piled into the Fed Reserve’s reverse repurchase agreement program with their cash.

The U.S. central bank allotted $96.97 billion of reverse repos paying an interest rate of 1.75 percent to 51 bidders. This was the highest amount of reverse repos in almost six months.

Reporting by Richard Leong; Editing by Susan Thomas and Lisa Shumaker

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