While issuance in the term asset-backed securities market has been record breaking year-to-date, average asset-backed commercial paper outstandings fell approximately $7 billion to $634 billion in January from $641 billion in December, which, historically, was the largest month-over-month drop, on both a nominal and percentage basis, according to data posted by the Federal Reserve Bank.
Much of this was attributable to seasonal patterns, as issuers tend to be more balance-sheet conscious toward the end of the year. Outstandings in the ABCP market grew $34 billion from November to December.
Since then, outstandings have hovered in the low $640 billion area.
From December to January, average outstandings in the entire commercial paper market fell $24 billion to $1.58 trillion, which was also the largest month-over-month drop in total outstandings (nominally and percentage-wise).
ABCP pros are citing the higher rates in the A2/P2 market as a possible reason for the drop.
A2/P2 spreads have widened relative to A1/P1 spreads, according to an asset-backed commercial paper trader. Further, corporate downgrades of issuers like Lucent Technology have forced certain issuers out of the market all together.
"The P2 corporate market is really disappearing," said Samuel Pilcer, managing director and head of the ABCP group at Moody's Investor's Service. "It's just getting too expensive."
However, industry pros are expecting the ABCP market to benefit from this shift in corporate credit, the same way that the term ABS market benefited.
"A lot of those P2 companies are going to start selling assets to CP conduits," Pilcer said. "So I think you're going to see an increase from that."