Fed Says Commercial Paper Surged in May

The amount of commercial paper outstanding grew $14.7 billion in May, the largest monthly increase since November 2000 and the first boost this year, according to Federal Reserve statistics.

Commercial paper, corporate debt that matures in nine months or less used to finance day-to-day operations, rose to $1.37 billion, the highest total since February.

Commercial paper had been dropping as issuers refinanced through longer-term loans and bonds. Firms also got higher bank credit lines to stave off concern about a cash crunch if a company has to immediately pay off short-term debt as its credit deteriorates.

The increase shows “there is certainly some possibility that the decline in commercial paper outstanding is leveling off,” said John Puchalla, a senior economist at Moody’s Investors Service.

The increase also may mean that companies have finished addressing criticisms about insufficient back-up credit lines and over-reliance on commercial paper, said Louise Purtle, a corporate bond strategist at CreditSights Inc.

The surge in new commercial paper was fueled by a $21.2-billion increase sold by financial companies, such as banks and credit companies. The last time the amount of seasonally adjusted commercial paper grew was in December, Fed statistics show.

Commercial paper outstanding fell this year by the most in 40 years as a recession and a record number of credit rating cuts sapped demand. The drop came as companies rushed to sell notes and bonds, extending the average maturity of debt, before interest rates rose.