The U.S. commercial paper market shrank again last week and has lost 11 percent of its value in just a month, according to Federal Reserve data showing credit markets remain troubled.
The securities are a key way for companies to raise short-term funding, but have been hit hard as suspicion grows about which financial institutions might hold tarnished subprime mortgage assets.
Despite actions by the Fed to revive lending, including a reduction in the rate it charges banks, the amount of outstanding commercial paper tumbled $62.8 billion in the latest week on a seasonally adjusted basis.
That was a smaller drop than the prior week's $90.2 billion pullback. But it was still considerable, and left total outstanding commercial paper at $1.979 trillion, the first time it fell below the $2 trillion mark since March.
The financial sector's troubles can themselves be traced back to high-risk subprime mortgages, which were packaged, repackaged and resold in the secondary market for loans.
The problem now is that, with mortgage defaults rising, nobody knows who is holding what and everyone is afraid to take chances.
This has effectively paralyzed many sectors of the market for asset-backed securities. Asset-backed commercial paper outstanding swooned $59.4 billion, bringing declines over the past two weeks to $184.9 billion.