Thaw Is Felt in Market for Commercial Paper

By LIZ RAPPAPORT A significant batch of companies that had turned to the Federal Reserve as a buyer of last resort for their commercial paper have likely moved back to private buyers, showing that the once-frozen market has thawed, but not completely. The amount of three-month debt the Fed holds in its Commercial Paper Funding Facility fell by $102 billion in a week when about $230 billion of commercial paper the Fed owned was set to mature. That suggests some issuers likely returned to the open market. The market for this three-month debt took the heavy new supply load in stride. While the Fed doesn't disclose whose debt it is buying, or delineate which purchases are new and which are refinancings, investors have kept a close eye this week on the commercial-paper market's reaction as a test of the Fed's efforts to restore credit markets to more-normal functioning. "I believe the CP market has been stabilized, but it is not back to full health," says Joseph Abate, money market strategist at Barclays Capital. Still, many issuers did resell their debt back to the Fed for another three months of financing, even though the Fed charges them higher interest rates than others pay in the open market, say traders. Meanwhile, a few have found alternatives to the market and the Fed, by turning to other, cheaper debt venues such as issuing certificates of deposit or Yankee CDs, or other shorter-term debt, say traders. The total outstanding amount of short-term debt in the commercial-paper market fell by $86.8 billion in the week ended Wednesday -- the third straight week of decline, according to Fed data. The debt sold by financial companies fell substantially, by $93.5 billion. The deluge of supply maturing this week didn't alter rates, a mark of strength for the market, say analysts. The Fed is buying commercial paper at rates of 1.2% to 3.2%, while borrowers with access to the open market are borrowing for three months at rates ranging from 0.4% to a little more than 2%, according to Fed data. Money market fund managers, which buy commercial paper, still are wary of foreign bank debt, say traders and analysts, but these borrowers rely heavily on the market to borrow much-needed U.S. dollars. So these banks ended up rolling over their debt with the Fed, says one trading desk head. Goldman Sachs Group, Conoco Sell Bonds Goldman Sachs Group Inc. sold $2 billion in 10-year notes without government backing and nonfinancial firms raised almost $14 billion as investors clamored for investment-grade bonds. Oil producer ConocoPhillips sold $6 billion in bonds, and AT&T Inc., $5.5 billion, among Thursday's largest deals. Goldman Sachs and other financial institutions have sold billions of dollars of short-term bonds at cheap rates through the Federal Deposit Insurance Corp.'s Temporary Liquidity Guarantee Program. "The successful placement of unguaranteed, unsecured financial debt is a critical signpost pointing to further thawing in the credit markets," said Jon Duensing, principal at Smith Breeden Associates.