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What is the commercial paper market?

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14th Nov 2009 by Joseph Pousada

In the United States commercial paper is debt issued that matures in less than nine months. Since the maturity date is short they are exempt from the normal Initial Public Offering procedures an organization would need to follow to issue stock or bonds. The issues are normally issued at a discount from the amount to be received at maturity. There is a huge secondary market for commercial paper of all types. In the United States government and municipalities will also issue RAN (Revenue Anticipatory Notes) and TANs (Tax Anticipatory Notes) offering a level of tax exempt interest on the commercial paper due to the Supreme Court Ruling disallowing different government agencies from taxing each other. Before investing, talk to your advisor about which commercial paper would be good for you.

Reference:
http://www.sec.gov/about/laws/sa33.pdf
http://en.wikipedia.org/wiki/Commercial_paper


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3rd Nov 2009 by Tom Lindmark

Commercial paper are IOU's issued generally by larger corporations though other institutions also issue commercial paper. Generally, the money they borrow is relatively short term, ranging from overnight loans to loans up to a year. The money they borrow is used to finance their working capital requirements and quite often they roll over or in other words reborrow maturing commercial paper. Rates on commercial paper tend to be better than you can get on short term Treasury notes and a few small points better than bank CDs. Unless you have a lot of money to invest you probably can't buy a single issuer's commercial paper as they tend to be sold in large denominations. However, you can invest indirectly in commercial paper via a money market fund.

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1st Nov 2009 In Money Market 2 Answers | 2571 Views
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