The liquidity crisis is taking on a new dimension with funding problems in the commercial paper market. The graph of CP rates shows how there is greater differentiation across issuer types. ABS CP market spreads has blown out to levels not seen in years.
The CP crisis is taking on a scary tone in Canada when 17 Canadian issuers failed to sell short-term debt and sought alternative financing from banks, according to Dominion Bond Rating Services, the Canadian rating agency.
The options for short-term cash managers are becoming limited. Spreads have grown for some CP names. You cannot sell this short-term paper and you may have to mark it down. If there are fund redemptions and the paper cannot be sold to raise cash, the concentration levels for some names actually increase. If the CP reaches maturity, investors may not be willing to roll the paper forward which exacerbates a companies funding problems.
More than central bank liquidity may be needed, but options are limited.
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