Buyer's Strike

Msnbc-

The size of the US asset-backed commercial paper market has shrunk for an 18th consecutive week, reducing this important source of funding for financial institutions to its lowest level in two years.

For the week ending on Wednesday, the amount of outstanding ABCP declined $10.3bn to $791bn.

The week before, ABCP declined $23bn and since the market peaked at $1,200bn in early August, it has shrunk by more than one-third.

Around 75 per cent of ABCP is being funded on an overnight basis and analysts say money funds and banks are seeking to avoid holding such exposure over the year-end.

Since late November, the volume of outstanding financial commercial paper has increased from $827.6bn, while the total amount of ABCP has shrunk below $800bn. Not since 2001 has financial CP been greater than ABCP.

According to analysts, this shows that banks are funding more assets directly, rather than through SIVs and other off-balance sheet entities. The shrinking commercial paper market is one factor behind the current elevated money rates in the interbank lending market. In spite of a co-ordinated plan to inject more liquidity into the markets by central banks this week, dollar, sterling and euro denominated Libor remains well above the overnight borrowing level set by central banks.