From the Fed’s weekly report on commercial paper released Thursday evening (GMT) here’s the key graphic:
That little yellow uptick on the right represents the first rise in Asset Backed Commercial Paper issuance since August.
Breaking 20 weeks of consecutive declines, the total size of the ABCP paper market has now actually risen by $26.3bn to $773.8bn. (ABCP being the short term notes typically issued by off-balance sheet structures such as SIVs and conduits)
Calculated Risk suggests the rise points to an easing in the liquidity crisis, picking up on a line from the WSJ’s economics blog:
…as 2008 begins, it’s solvency, not liquidity, that threatens the economy and the financial system.
Indeed, with most SIVs now firmly consolidated onto banks’ balance sheets, and various moratoria in place on a number of other ABCP conduits, 2007’s liquidity troubles are fast fading from view.
But, ABCP markets may have a little way left to fall. Take seasonal adjustments into account, and Thursday’s ABCP rise is actually only to the tune of $8.3bn dollars. And Friday’s FT reports a more sceptical version of events from Morgan Stanley analysts:
“This is a short term respite,” said George Goncalves, chief Treasury strategist at Morgan Stanley. “We still expect the market will ultimately return to its 2005 level of between $650bn and $700bn.”
What’s more, since year end, 30-day ABCP rates have fallen sharply, down at 4.65 per cent from 5.98 just before Christmas. Elevated rates may have been a major factor in encouraging last week’s spike in ABCP issuance, sweetening the pill for cautious investors.
