The market for asset backed commercial paper continues to shrink, which does not bode well for the proposed SIV rescue plan. Commercial paper is short-term funding, less than 270 days, used by corporations and even more so by financial firms.
Note that this story on MarketWatch focuses on ABCP outstadings. The dramatic Fed rate cut of September has not led to improvement, merely ameliorated the deterioration. The article notes that unsecured CP outstandings continue to grow, but that market has not been in crisis.
The outstanding level of asset-backed commercial paper fell for the 12th straight week, the Federal Reserve reported Thursday. Asset-backed paper dropped by $9 billion, or 1%, to $875 billion. Asset-backed paper, which are short-term IOUs backed by assets such as mortgages, credit cards or other receivables, has plunged by $308 billion, or 26%, since the crisis of confidence in credit began in early August. The collapse of the market has prompted large banks to seek alternative funding for their special investment vehicles. Citigroup’s shares were lower on Thursday on reports it needed to raise $30 billion in capital. The larger market for commercial paper continued to recover, rising $9.9 billion, or 0.5%, to 1.88 trillion