Wednesday, August 22, 2007

Asset-Backed Commercial Papar Market Still Locked

Hat-Tip to the Kingsland Report

From Dow Jones:

The asset-backed commercial paper market, where highly-rated lenders have gone for their short-term funding needs, is still broken despite the Federal Reserve's attempt late last week to fix the logjam in this key part part of credit markets.
The Fed on Friday cut its discount rate by half-percentage point in an attempt to alleviate the pressure on banks that found their access to the commercial paper market shut off amid a crisis of investor confidence.

"Apparently, the market's worse today than it's ever been," said Dominic Konstam, head of interest rate strategy at Credit Suisse. "The big failure to roll HBOS paper in Europe has upset people." Earlier Tuesday, the U.K.'s biggest lender HBOS PLC (HBOS.LN) said its credit-investment vehicle Grampian will repay maturing asset-backed commercial paper from the bank's balance sheet rather than tap credit markets.

The yield on the benchmark 30-day asset-backed commercial paper index quoted by broker deals has reached 6.05%, from 5.30% a couple of weeks ago, Konstam said.

"In total, a couple of hundred billion of asset-backed paper in the US is at risk of not rolling," he said, meaning companies will be unable to raise new funds in this market to pay off maturing debt.

The short version is we're not out of the woods yet. Not by a long shot.