Only the strongest survive (and thrive) in the CP markets

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Money mart assets move to struggle to put change to impact , searching for product that would obey with pending newborn regulation, still provide returns that are above deposit bills. The returns on money mart assets move to be pathetic - most 15-25 foundation points annualized.

The better rated banking firms hit taken notice of this demand. They today hit a choice of resource themselves by adoption from another banks or via the CP market. (Neither was really acquirable on anything but the long foundation in the second half of 08).


With the 3 period LIBOR hovering above 25 bp, CP resource is cheaper for banks that crapper intend AA rating on the essay (see the CP consent flex below).





And banks are indeed attractive plus of it, supply CP and commerce it to guys like the Fidelity MM fund. That gives the larger/stronger banks a actual plus over the small ones. Community banks hit to pay depositors 60 bp on checking accounts and over 105 bp on money mart acccounts - and that's their key maker of funds. The larger banks crapper fund themselves with CP at 20 bp. That's a momentous combative advantage.

The newborn issuance of CP has caused the amount of financials-issued advertizement essay outstanding to spike,



source: FRB



driving up the overall CP notional.



source: Bloomberg


This newborn supply is easily absorbed by money mart funds. The CP mart has only bifurcated into those who hit the credit calibre to supply essay and those who don't - there's lowercase in between. With newborn regulation, money markets won't be healthy to buy such "tier-2" CP and there aren't another buyers out there. You are either "tier-1" or you are basically out of the mart (some stronger "tier-2" crapper still locate paper, but in limited amounts - maybe 5% of the total). For a while the FRS was purchase CP via the CPFF program, but that's winding down:



source: FRB


The survivors in the CP mart are whatever of the strongest institutions or institutionally sponsored ABCP programs. Everyone else has to look for another sources of funds.


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