David Rosenberg of GluskinSheff draws attention to the continuing contraction of the US commercial paper market, one of the main portals of funding for medium-sized enterprises in the country. In his latest report he writes (our emphasis):
We continue to hear from strategists and economists that the credit clouds have parted, and yet the U.S. commercial paper market continues to contract (by $40 billion in the July 15th week) to a level not seen since 1998. And, the declines are right across the board — financial issuers, non-financial, asset backed — in fact, the asset backed market is all the way down to $440 billion of outstandings from $1.2 trillion at the credit bubble peak in the summer of 2007. Commercial bank balance sheets also continue to shrink — by $12 billion in the latest week, with outstanding consumer credit falling the fastest.
In light of corporate lender CIT’s near bankruptcy and last-minute rescue — actually seen by many as more of a temporary band-aid than a permanent solution — goings on within the CP market should be of high interest. The following chart offered by Rosenberg, however, is hardly reassuring:
The point is that if CIT were to go down, corporates would hardly have a reliable source of alternative funding to available to them. While there is the argument the shrinkage stems from companies’ increased use of the Fed’s Commercial Paper Funding Facility, that’s hardly indicative of the market having returned to pre-crisis norms.
If anything, the above indicates increasingly prolonged government support being applied to the sector. This would only be heightened by CIT’s collapse.
Related links:
Commercial paper market shrinkage – FT Alphaville
Libor is useless – FT Alphaville
CIT would be the fourth-largest bankruptcy in US history – FT Alphaville