ABCP Making its Triumphant Return

While certainly not a resurgence, the issuance of ABCP has been surging the past few weeks, especially in the real short term paper. With short term Treasury notes yielding 2%, the Fed conducting auctions and slashing rates, global markets selling of resulting in investors flocking to cash, some demand is probably starting to creep up as the “sell ABCP backed MMF, buy Treasury Fund” trade is over. The fact that the Fed is behind the curve allows banks to cut their Money Market Fund rates for their clients and still remain attractive over standard treasury based money markets. This enables them to start to get the Fed’s money working, when unable to really lend to consumers. This is a very interesting thing to watch, as it illustrates the impact of Fed cuts on the velocity of money as well as market’s collective view of risk and signal of the beginning of a potential reflation.