The financial crisis is over, but Canada's commercial paper market hasn't come back to life.
Before it fell apart, CP paid handsome rates in the range of 3 to 4 per cent for short-term paper. Now ultra-low-interest government CP is the dominant product, comprising 70 per cent of the market, and rates aren't even half of what they were. Understandably, investors have backed away.
A new study by DBRS attributes the fallout to two main catalysts. First, investors are averse to corporate credits at the short-tend of the curve because they can't get a decent yield premium. Second, low long-term rates make it attractive for issuers to move out the yield curve.
The combination of forces caused corporate CP issuance to fall to $26-billion last year. That's less than half of what it was in 2006, while total government issuance in 2010 hit $216-billion, up about 40 per cent over the same period.
DBRS anticipates that the market will come back. Eventually market conditions will improve and companies will need working capital. Plus, interest rates are going up, so shorter-term paper will be more attractive. But for now, money-market desks can't be having too much fun.