Commercial paper market shrinks

The U.S. commercial paper market shrank for a fourth week, extending the biggest slump in at least seven years, as investors balked at taking on debt backed by sub-prime mortgages.

The amount of outstanding short-term debt maturing in 270 days or less fell $54.1 billion in the week ended Wednesday to a seasonally adjusted $1.93 trillion, the Federal Reserve reported.

The volume of commercial paper outstanding has dropped $298.2 billion, or 13%, in the last month. Mortgage lenders such as Countrywide Financial Corp. and some investment firms have been shut out of the market.

Companies that can roll over their asset-backed debt are paying as much as 6.26% in annualized interest for a 30-day term, a six-year high.

Commercial paper is bought by money market funds and mutual funds that invest in short-term debt securities.

In asset-backed commercial paper, the cash is used to buy mortgages, bonds, credit card and trade receivables, as well as car loans. Some of the programs are backed by sub-prime loans.