The Structural Shift In The US Commercial Paper Market

The 2008 financial crisis may have forever changed the US commercial paper market. Not only is the total amount of commercial paper outstanding still 50% less than its peak it 2007, the internal composition of the commercial paper market has changed dramatically as well.

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In 2007, only about 8-9% of the commercial paper market was made up of nonfinancial commercial paper. Today, a quarter of the total amount outstanding comes from nonfinancial firms. The change has occurred for two reasons. First, the total amount outstanding has increased by about $100 billion since 2007. However, the bigger change has been the complete collapse of the asset-backed commercial paper market. The good news is that for the first time in years asset-backed commercial paper is showing some signs of life.

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At its highest point in 2007,  asset-backed commercial paper accounted for 55% of the total amount of commercial paper outstanding. Put another way, the total amount of asset-backed commercial paper outstanding was over 8% of US GDP! Today, it’s down to just a quarter of the total amount outstanding and is only 1.5% of GDP. In aggregate, the amount outstanding of asset-backed commercial paper has fallen from $1.2 trillion in 2007 to $269 billion today. However, as we said earlier, for the first since the GFC the market is showing signs of life. The total amount outstanding has increased 23% year-over-year and is up about $45 billion from the low in 2015. The average amount issued per filling has slowly increased as well even as the number of fillings remains near 15-year lows. It seems that after 9 long years the asset-backed commercial paper market may have finally be healing.

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