Commercial Paper Slump Eases; Asset-Backed Drop Slows

By Mark Pittman
Sept. 13 (Bloomberg) -- The decline in the U.S. commercial paper market slowed last week, as concerns eased that borrowers would be unable to repay their short-term debt.

The $8.2 billion reduction, down from $31.3 billion a week earlier, signals the credit squeeze sparked by defaults on subprime mortgages may be easing. The freeze shut out borrowers including lenders Countrywide Financial Corp. and Thornburg Mortgage Inc. and GMAC LLC. Issuers with the biggest chance of default had stopped trying to sell debt, said Tony Crescenzi, chief bond market strategist at Miller Tabak & Co.

"Investors have already pushed out the weakest issuers,'' said Crescenzi, who is based in New York. ``The commercial paper that remains is a relatively more respected crop.''

Short-term debt maturing in 270 days or less fell to a seasonally adjusted $1.92 trillion in the period ended yesterday, including a $21.6 billion decline in asset-backed commercial paper, according to data released today by the Federal Reserve in Washington. Commercial paper outstanding has fallen $306.4 billion in five weeks.

The slump is the longest since at least July and August 2003, when the amount of debt decreased by 1.5 percent over four weeks. Asset-backed paper, which dropped 2.2 percent in the past week to $945.1 billion, declined $237.8 billion, or 21 percent, in the past five weeks.