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Commercial Paper Differential


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#1 OEXCHAOS

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Posted 25 July 2023 - 11:28 AM

https://fred.stlouis...m_source=direct


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#2 SteveB

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Posted 25 July 2023 - 03:32 PM

Mark, I know you follow this, you often post about it, but I don't understand what it means. Maybe I'm the only one here that doesn't know. I'd like to learn what it is and why you watch it, so could you reply with a short explanation for us commercial paper dummies? Thanks in advance!



#3 OEXCHAOS

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Posted 25 July 2023 - 04:45 PM

Mark, I know you follow this, you often post about it, but I don't understand what it means. Maybe I'm the only one here that doesn't know. I'd like to learn what it is and why you watch it, so could you reply with a short explanation for us commercial paper dummies? Thanks in advance!

Sure. So, the commercial paper rate that I'm looking at is the rate charged for 90-day money. The St. Louis Fed allegedly tracks this for financial and non-financial companies. My thesis is that there's always somebody who knows when a company/industry is in trouble before it's publicized. As such, as concerns arise, those lending money to financial companies will demand a bit more return to offset nascent risks. So, non-fianancial companies might be borrowing at a much lower rate due to much lower risk when financial companies are perhaps in a bit of trouble. That differential is what I'm using as a "tell" when I'm looking to see how sound those lending money see the financial companies as being.

 

Right now, since they aren't reporting non-financial CP rates, I'm just comparing vs. 90-day Treasury Bills (risk free rate) vs. Financial CP. I'm not seeing much of a risk premium. So, I don't see much risk to the financial system right now.


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#4 hhh

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Posted 25 July 2023 - 11:01 PM

When I click on the link above, the chart stops at 2016-09-21. I have to change it to make it end at 2023-06-06. Just thought I'd point that out in case anyone missed that.


Edited by hhh, 25 July 2023 - 11:03 PM.


#5 OEXCHAOS

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Posted 26 July 2023 - 03:08 PM

When I click on the link above, the chart stops at 2016-09-21. I have to change it to make it end at 2023-06-06. Just thought I'd point that out in case anyone missed that.

I can't figure out how to fix the link!

 

M


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#6 hhh

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Posted 26 July 2023 - 03:20 PM

Try this, I made it with the "Share Links" button below left: https://fred.stlouis.../graph/?g=17mfG