Concerns over short-term funding for banks may increase: FT

London, Oct 3 (PTI) Concerns over availability of short-term funding for banks and companies may increase with investors pulling out USD 95 billion from the U.S. commercial paper market during the last week, a media report says.

"The amount invested in the U.S. commercial paper market
fell by USD 95 billion during the past week, increasing
concerns about the availability of money for banks and
companies from this vital source of short-term funding," the
Financial Times reported.

Commercial Paper (C.P.) is a type of short-term debt that
was widely bought by money market funds. It is an unsecured,
short-term debt instrument issued by a corporation.

Data released by the U.S. Federal Reserve showed the
amount invested had its biggest weekly drop since the central
bank began tracking the sector in 2001 and in the past three
weeks more than USD 200 billion has been taken out, the daily
added.

Since Lehman Brothers filed for bankruptcy, money market
funds have seen enormous outflows as investors fled to safe
investment options such as short-term U.S. Treasury debt.

"Although traders reported more interest from investors
on Thursday and a slight decline in the interest charged for
CP transactions, it is thought unlikely that all the money
that has been pulled out will return," the daily added.

Financial Times further added the freezing of the
Commercial Paper market has affected even top-rated companies
such as the conglomerate General Electric and the telecom
group AT&T.

Quoting Suki Mann, credit strategist at SG CIB, Financial
Times said "the credit markets are completely gummed up.
Conditions have deteriorated every day over the past week".

Just like regular Commercial Paper, the amount invested
in asset-backed commercial paper backed by loans such as
mortgage or auto loans also fell, by USD 29 billion in the
last week, the daily added.

The daily said "significantly, the spread of three-month
Libor for the dollar over expected official rates considered
a pure measure of credit risk as it measures the extra
interest rates banks must pay to borrow relative to the
government hit historic levels.

Dollar London interbank offered rates for three-month
money increased to 4.2 percent, a 5 basis point daily rise,
while rates for the euro rose to 5.28 percent, a 3 bp rise,
and for sterling to 6.3 percent, a 3 bp rise.

"It (rates) rose to 260 bp, a three-fold jump since
Lehman folded two weeks ago," the report added. PTI DRR