Finally, some good news about (what's left of) Canada's asset-backed commercial paper market.
Aside from that pesky $34-billion that froze in August, the rest of the ABCP sector is holding up pretty well, defying predictions by some doomsayers that the whole concept of ABCP was dead in the wake of August's meltdown in credit markets.
As of October, there was still about $80-billion of ABCP outstanding in Canada. Granted, that's down from $86-billion in August (not including the frozen paper), a decline of about 7 per cent. That's not insignificant, but not all that precipitous, and with investors such as Canada Pension Plan Investment Board and new issuers such as Deutsche Bank coming into the market in November and December, more recent figures may even show a rebound or at least a bottom.
South of the border, things are looking a little more grim. As of Dec. 19 (the Fed's a little faster with the figuring) the ABCP market in the U.S. had contracted for 19 straight weeks. In that time, the amount of ABCP outstanding has plunged by $432-billion, or 36 per cent. The chart looks like the Matterhorn, and there's no sign that the drop is heading for a bottom anytime soon.
Much of the U.S. ABCP that's disappearing was issued by SIVs that had a significant exposure to sub-prime mortgages, and with buyers for paper nowhere to be found, the SIVs are in big trouble. But a broader revolt against ABCP will spell trouble for the U.S. economy as loan originators are forced to cut back on new lending because they can't sell old loans to investors.
In Canada, at the new higher rates that have taken hold in the ABCP market, investors are returning to snap up the remaining paper, almost all of it backed by the country's big banks and based on loans that have no relation at all to subpime, meaning lenders have the ability to get assets off their balance sheet and make new loans.
Still, Canada's economy is going to feel the pinch, notes Daryl Ching, an ABCP market consultant who founded Clarity Financial Strategy. Banks and lenders aren't going to swallow the higher rates they are having to pay to investors, which means only one thing.
"Increased cost to the consumer who's getting a loan will be the result," said Mr. Ching.
