"There’s been a serious spread tightening," said one London-based CP dealer. "BMW, which was doing plus 25 to plus 30 a month to six weeks ago, is now issuing three month paper flat. As issuers get done, they bring their spreads in. And as demand increases for paper, as it is now, spreads tighten further."
Spreads have been tightening across sectors. Banks are benefitting from increased liquidity in the wake of actions by authorities as well as increasing investor appetite for their paper.
Corporate issuers, meanwhile, continue to face excess demand for their issuance.
"There’s a lack of issuers who actually need funding," said another London-based CP dealer. "We’ve got lower absolute yields and tighter spreads. There are still some lower rated banks looking for stuff that aren’t getting too much, but most banks and corporates aren’t showing anything and when they do it’s ridiculously tight."
There are also differences by region in the banking sector, with some particularly expensive.
"Spanish banks and French banks are really tight," said one dealer. "Australian banks are turning away heaps of funding in the States, and that’s reflected in their ECP levels."
Some Spanish banks are still able to issue large volumes of CP at tight spreads.
"We’re seeing good demand for Spanish names and, in some cases, spreads are minus 40 or minus 50," said one dealer. "We’re seeing Banesto getting done in three and six months. German banks are also getting done pretty well."
Longer trades are becoming increasingly common.
"The curve is moving down on a daily basis," said one dealer. "There seems to be a lot of liquidity at the short end, so people are going longer and taking six month trades or nine month trades."
The lack of supply is making investing difficult for buyers.
"There are still investors, both corporates and funds, looking to buy some CP, but it’s tough," said one dealer.
Market participants expect the tightening of spreads to continue as many issuers, including many ECP mainstays, change their funding strategies and focus less on short-term funding.
Most, though, are pleased with the current state of the market.
"I haven’t seen any spreads widen over the last two or three weeks, and the tightening has been pretty quick," said one dealer. "It’s a good sign."