We have written before how many of the various government interventions to try to produce specific outcomes in financial markets have either not proven very successful or produced adverse outcomes elsehwhere.
The latest example is the Fed’s new program by which it is buying commercial paper, a form of short-term corporate debt, directly from companies to lower their borrowing costs, which spiked up dramatically as many investors have shifted their short-term holdings to Treasuries or Treasury money market funds.
Today was the first day of the Fed’s new program, and in a ringing endorsement of the concept, interest rates on commercial paper increased.
Yields on commercial paper rose as the Federal Reserve began buying the debt directly from companies, showing the central bank’s efforts to unfreeze short- term credit markets have yet to take hold.
Rates on the highest-ranked 30-day commercial paper, which many corporations use to finance their day-to-day operations, jumped 25 basis points to 2.88 percent, according to yields offered by companies and compiled by Bloomberg….
The market has shrunk by one-fifth since Sept. 10, its worst slump on record, as investors shunned the debt and companies sought alternative financing. Several dozen companies including General Electric Co., Morgan Stanley and American Express Co. have registered to be in the Fed’s program…
The Fed today set the rate it’s willing to accept for 90-day unsecured commercial paper at 1.88 percent plus a 1 percentage point credit surcharge. The 90-day secured asset-backed rate was set at 3.88 percent, according to Fed data compiled by Bloomberg.
That compares quoted rates of 3.19 percent for the asset- backed commercial paper of the highest-ranked companies and 3.79 percent for companies one grade lower, Bloomberg data show. The rates are set under the Fed’s Commercial Paper Funding Facility and are available on CPFF.
Yields on 30-day paper plunged to a four-year low of 1.92 percent last week after earlier reaching a nine-month high of 4.28 percent, Bloomberg data show. At 2.88 percent, the debt still yields 1.38 percentage points more than the Fed’s target lending rate. Before the seizure, the rates were about the same.
Rates on paper due in 90 days rose 2 basis points to 3.34 percent, Bloomberg data show.