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These interest rates are for short term (30 day) commercial paper that is typically issued by corporations to “raise needed cash for current transactions”.
A key in reading these rates is to recognize that the AA non-financial is more highly rated than A2/P2 non-financial and that, in general, the AA non-financial tends to track the Federal Reserve’s target rate while the others typically track slightly higher.
Normally, the spread between the weakest quality paper (A2/P2 non-financial) and the highest (AA non-financial) is 15-20 basis points but as of the latest Fed posting, the spread has expanded dramatically to 438 basis points… truly a worrying sign.
The first chart shows the spread between the A2/P2 and AA non-financial while the lower two charts show the how all the short term commercial paper rates have tracked since 1998 and mid-2007 respectively.
Notice that prior to mid-2007, the Federal Reserve had been able to keep these rates fairly tight and in-line with the target rate but now we are seeing significant trouble with the spread now standing at a 472 basis points.
In as sense, the current crisis has effectively erased all the rate cuts Bernanke has made this cycle and even added another 75 basis points.
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