WSJ Writes on CP Market Stress
On Tuesday, The Wall Street Journal wrote the piece, "Stress Endures in Market Where Big Companies Turn for Cash," which tells us, "The normally staid corner of Wall Street where companies and banks borrow money for days or weeks at a time was suddenly at the center of a near financial meltdown last month. Some fund managers are concerned that problems remain despite the quick work of central banks to ease the funding strains. Known as commercial paper, this more than $1 trillion market of short-term loans, used by companies to cover expenses such as payroll and paying suppliers, froze during March's coronavirus-induced mayhem." The article explains, "One problem, say market participants: Trading was dominated by a limited cast of big investors who were seeking to sell big slugs of commercial paper through a smaller number of banks that arrange the financing, known as dealers. This led to bottlenecks." It quotes Lombard Odier Investment Managers' David Callahan, "Like eight elephants trying to fit through three small doors." The Journal tells us, "The extent of the freeze shocked money-market fund managers. 'Like: Wait a minute, you don't have a bid on anything?' said Tim Robey, manager of Eaton Vance's in-house money-market fund.... Although trading has restarted, commercial-paper borrowing rates remain elevated." Finally, they write, "Much of that cash instead flowed into an even safer flavor of money-market funds, which invest solely in short-term Treasury bills and other government-backed debt. Those funds have grown by nearly $1 trillion, increasing their total assets by more than a third. Those inflows played havoc with short-term Treasury markets, pushing yields on three-month bills into negative territory on March 26. Fidelity Investments, one of the leading money-market fund managers, closed three of its Treasury-only funds to new investors so that it wasn't forced to keep investing in money-losing paper." See also, the WSJ's "Chinese Investors Stash More Cash in Money-Market Funds During Pandemic," which says, "Individual investors pour more than $141 billion into domestic money-market mutual funds in first quarter."
