The amount invested in the US commercial paper market fell by $95bn in the past week, fuelling concerns about the availability of money for banks and companies from this vital source of short-term funding, reports the FT. Fed data showed the amount invested had its biggest weekly drop since the central bank began tracking the sector in 2001. In the past three weeks, more than $200bn has been taken out of CP. Of the $95bn weekly drop to $1,600bn, financial paper accounted for most of the decline, falling $65bn. Money market funds have seen huge outflows since Lehman Brothers filed for bankruptcy last month, sparking a flight to safer investments. Although traders reported a slight decline in the interest charged for CP transactions, they say it is unlikely that all the funds withdrawn will return. The freezing of the CP market – which has hit even top-rated companies such as GE and AT&T - comes amid continuing stress in the bank lending markets. Despite a drop in overnight rates, the fees banks charge each other to borrow beyond a month remained high. Meanwhile, reports Bloomberg, interbank rates soared as financial institutions hoard cash to meet future funding needs amid deepening concern that more banks will collapse.
