March 17, 2020 / 5:33 PM / 14 days ago

Short-term borrowing costs rose before Fed announcement

NEW YORK, March 17 (Reuters) - The cost for companies to borrow commercial paper was higher on Tuesday morning before the Federal Reserve made an announcement it would purchase the short-term debt directly from companies that issue it in an effort to backstop the market.

“Quoted rates have gone up from where they were yesterday,” said Kevin Giddis, chief fixed income strategist at Raymond James.

Commercial paper - short-term loans that companies use to meet financing needs for things like payrolls, accounts payable and inventories - has become more expensive for companies in the past week. The spread between interest rates on lower and higher-rated overnight commercial paper increased on Monday to its widest level since 2008, signaling investors are demanding a hefty premium to hold riskier debt.

Reporting by Kate Duguid Editing by Chris Reese

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