Asset Backed Commercial Outstandings Increase for First Time Since August

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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  1. doc


    Colonial’s debt ratio is one of the highest in the Spanish real estate sector, representing 77 percent of assets, compared with a 45-50 percent average in the European real estate sector, according to Banesto bank.
    A squeeze on global market liquidity, a cooling property market and rising interest rates have conspired to make it more difficult for Spanish property developers to service their debt.

  2. doc

    Wake The Hell Up America!!!

    FHA Reforms
    NAR successfully lobbied for the passage of H.R. 1852, the Expanding American Homeownership Act of 2007, which helps modernize FHA by expanding the availability of safe and affordable FHA-backed loans for purchases and refinances. The bill includes provisions to eliminate the 3% down payment requirement, increase loan limits up to 175% of the conforming limit in high-cost areas, streamline condominium purchases, and eliminate the cap on Home Equity Conversion mortgages (HECMs). The Senate Banking Committee passed a similar bill. The Senate bill is expected on the floor by the end of the year.

    Freddie Mac/Fannie Mae Reform
    NAR also successfully lobbied for passage of H.R. 1427, the Federal Housing Financing Reform Act of 2007, which overhauls the regulatory structure of the nation’s housing finance government-sponsored enterprises (GSEs). H.R. 1427 provides for regional adjustments to the caps on mortgages the GSEs may buy for high-cost areas, helping more working families qualify for safer GSE loans. The House passed H.R. 1427, 313-104. The Senate has taken no action to date.


  3. Anonymous

    I need someone to cash this in for me as an outcome of the TAF. Are the weaker players who are able to use this facility, responsible for the drop in the spread (currently down to 60bp over LIBOR)? The stronger players can no longer bully them with a 100bp spread and hence we have that break through of sorts from that retreat in ABCP?

  4. Anonymous


    Im begging yah, do a story on this crap!

    On Sept. 18, the House, by a bipartisan 348-72 vote, approved the Expanding American Homeownership Act of 2007 (H.R. 1852), which would create 40-year FHA-insured mortgages, institute risk-based premiums, allow zero down payments for first-time borrowers and lift the cap on Home Equity Conversion Mortgages (HECMs).

    Thats 40 year mortgage with zero down and its racing into the Senate….dah!

  5. Anonymous

    I think this is totally the result of the TAF. Banks are selling ABCP to each other so they can pledge it as collateral to the Fed. The Fed is rolling off some of their Treasury debt at the same time to pay for it, so this is essentially the Fed taking money out of the pockets of Treasury to prop up the zombie ABCP market.

    Something tells me that the Fed and the Treasury are not on the greatest terms these days. Technically the Fed has the right to be repaid for its Treasury debt, but in practice it has always rolled it over. If it doesn’t, Treasury has no option but to go to the open market to roll over the debt, at the penalty of higher interest (interest paid to the Fed is essentially zero).

    The Fed is seriously deluding itself if it thinks it’s being less inflationary to do it this way — keeping the monetary base constant by rolling off Treasury debt to balance the TAF injections. It’s using the power of the Treasury to bid up the price of an asset nobody else wants. If that’s not inflationary, what is?

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