The commercial paper market appears to be improving slightly (via WSJ):

NEW YORK — After being severely constricted for weeks, the commercial paper market showed tentative signs of recovery on Tuesday after global leaders aimed a number of initiatives at stabilizing financial markets.

On Tuesday, the U.S. government said it would inject $250 billion into ailing banks and guarantee bank debt for up to three years, and it unveiled details on a program specifically targeted at the commercial paper market.

Interest rates charged by some top-tier companies for short-term borrowing fell on Tuesday, while investors also became more comfortable lending for well beyond the just one day that had become the norm in recent weeks.

Overnight rates on General Electric commercial paper dropped to 1.0% from 1.15% on Friday, and seven-day rates dropped to 1.90% from 2.0%, according to Kevin Giddis, head of fixed income at Morgan Keegan.

This is a tentative sign that things are starting to get back to normal. The Fed will be in this market by October 27th. I’m not sure what the effect will be yet, but I hate the idea of the Fed funding the short term working capital needs of non financial US companies. For that matter, I don’t like the idea of the Fed funding US financial companies, but that train has left the station. I guess the more important question is what happens to the commercial paper market when the Fed leaves?

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