One Credit Indicator Shows Signs of Thaw

Overnight borrowing costs for companies fell to the lowest levels in almost two weeks yesterday in a sign that Wednesday's global interest rate cut and the Federal Reserve's commitment to buy commercial paper may be helping to thaw the short-term debt market.

Commercial paper, which typically matures in 270 days or less, is used by companies to finance payroll, rent and other daily expenses. Yields on the highest-rated one-day commercial paper placed by dealers yesterday declined 1.15 percentage points to 2.35 percent, according to data compiled by Bloomberg.

Sears Holdings reduced its offer rate 1 percentage point to 3 percent. HSBC lowered the rate it is willing to pay by 0.25 percentage points to 2 percent, the data show.

"The bleeding has stopped," Tony Crescenzi, the chief bond market strategist at Miller Tabak in New York, said in an interview on Bloomberg Television. "It's very vital and it's a market that seems to be showing signs of life."

Corporate borrowing options have dwindled as the investment-grade bond market remained all but closed. As the credit crisis escalated over the past few weeks, investors were only prepared to buy overnight paper, forcing companies to tap credit lines or forego raising debt because of the market's disruption.

U.S. commercial paper offerings dropped $264 billion during the past four weeks and fell $56.4 billion, or 3.5 percent, to a seasonally adjusted $1.55 trillion for the week ended Oct. 8, according to the Federal Reserve.

The central bank said on Tuesday that it would set up a special fund to buy three-month commercial paper from top-rated companies. On Wednesday, the Fed and 20 other central banks cut their benchmark lending rates in a coordinated effort to revive the stalled credit markets.

The Fed's commercial paper proposal "takes some pressure off the market," said Alex Roever, head of short-term fixed-income strategy at J.P. Morgan Chase. The plan "is really more targeted to providing funding backstop to the issuers. But I think a secondary implication of that is the investors can feel more confident in the market because they don't have to worry about their issuers getting caught in the liquidity squeeze."

Yields on some longer-dated commercial paper rose to the highest levels of the year. Seven-day commercial paper rates jumped 0.57 percentage points to 4.53 percent, the highest since Dec. 27, Bloomberg data show.