UPDATE 1-US commercial paper market expands in week-Fed

(Adds analysts’ quotes, more details, byline)

By Chris Reese and John Parry

NEW YORK, Jan 28 (BestGrowthStock) – The U.S. commercial paper
market, a vital source of short-term corporate funding,
expanded in the latest week, Federal Reserve data showed on
Thursday, hinting the economy was still growing.

Businesses use short-term borrowing to finance restocking
of shelves and to pay wages, so the increase in the debt
issuance suggests companies are anticipating demand growth.

After dwindling to roughly half its $2.2 trillion peak size
over two years during the credit crisis, the commercial paper
market started growing again for three months through late
October. Since then, the recent expansion trend has stalled.

For the week ended Jan. 27, the size of the market
increased by $54.8 billion to $1.147 trillion outstanding from
$1.092 trillion the previous week.

Unsecured financial issuance rose by $57.1 billion after
falling by $9.9 billion the previous week.

While the jump in unsecured financial issuance appeared
hefty at first blush, it likely was inflated by seasonal
adjustments, said Ray Stone, economist with Stone & McCarthy
Research Associates in Princeton, New Jersey.

“It is hard seasonally adjusting a weekly series,
particularly a series that had such extraordinary movements a
year ago,” Stone said, adding that he calculates the weekly
rise in unsecured financial issuance at just $4.6 billion on a
nonseasonal adjusted basis.

Overall, a flattening out of declines in commercial paper
levels may correlate with a rebuilding in business inventories,
Stone said.

“Companies issue commercial paper to fund short-term things
like payrolls and inventories. The flattening out is consistent
with what we have been seeing in the business inventory data,
that the liquidation of business inventories seems to have
passed,” Stone said.

The most recent data shows U.S. business inventories
increased 0.4 percent in November, matching the rise in
October. Inventory rebuilding is among the factors expected to
drive economic recovery following a period of aggressive
inventory liquidation.

Data on Thursday showed a rise in orders for long-lasting
U.S. manufactured goods in December, hinting at an increased
need to issue commercial paper, another analyst said. For
details, see [ID:nN28241882].

“I would attribute (the rise in weekly CP issuance) to
normal seasonal variations and possibly to some improvement in
industrial output. Today’s durable goods report helps back that
up,” said Tony Crescenzi, market strategist and portfolio
manager with Pacific Investment Management Co in Newport Beach,
California.

U.S. asset-backed commercial paper edged up to $431.0
billion outstanding in the latest week from $430.0 billion
outstanding the previous week.

Investment Basics
(Reporting by John Parry and Chris Reese; Editing by James
Dalgleish and Jeffrey Benkoe)

UPDATE 1-US commercial paper market expands in week-Fed