naked capitalism

Although a robin does not make a spring, the increase in ABCP outstandings is the first sign of improvement in the market for asset backed paper in quite some time. The required spread over 30-day Libor also improved dramatically. From Bloomberg:

For the first time since the August freeze in the credit markets, companies issued more IOUs backed by collateral as the cost to borrow in the short-term debt fell to the lowest in 22 months.

Commercial paper backed by mortgages, credit-card loans and other assets rose $26.3 billion to a seasonally adjusted $773.8 billion for the week ended Jan. 2, the Federal Reserve in Washington said today.

The 3.5 percent increase, the biggest gain in at least seven years, snapped a 20-week losing streak that began as losses from subprime mortgages caused a retreat from all but the safest government debt. Yields on the paper due in 30 days posted their biggest weekly decline in at least a decade as investors became more willing to hold the debt.

“The market is stabilizing,” said Neal Neilinger, managing director and co-founder at NSM Capital Management LLC in Greenwich, Connecticut. “I don’t think we’ll see another drop, unless there’s another headline that hits.”

Interest rates on the short-term debt due in 30 days fell 1.16 percentage point this week to 4.63 percent, or 9 basis points more than the one-month London interbank offered rate, Bloomberg data show. The spread fell from 116 basis points, the widest on record, on Dec. 28. In the first half of 2007, the yield on asset-backed commercial paper was on average 5.5 basis points less than Libor. A basis point is 0.01 percentage point.

“The market’s in a process of healing,” Neilinger said in a telephone interview. “The weakest are going to fall and the strongest are going to survive.”….

The broader commercial paper market rose $13.2 billion in the most recent week to $1.8 trillion, according to the Fed data. Companies typically sell commercial paper, which usually matures in three months or less, to help pay for day-to-day expenses including payroll and rent.

The rise in asset-backed commercial paper, which matures in 270 days or less, snapped a retreat of $447.6 billion, or 37 percent, that began after the market reached a peak on Aug. 8 of $1.2 trillion…..

The lowest tier of issuer is paying about 50 to 60 basis points more than the largest, most liquid programs, compared with a couple of basis points six months ago, said Alex Roever, a debt strategist at JPMorgan Chase & Co. in New York. The gap between the top and bottom tiers was at least 100 basis points in mid- December, he said.

“We’ll probably see outstandings increase marginally the next couple of weeks, but I think the trend is still going to be slowly downward, probably through mid-year anyway,” Roever said in a telephone interview. “It’s a very tough market from a financing perspective right now.”

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