Commercial Paper Market Expands $11B as Funding Costs Hold Below Fed Funds

Total commercial paper outstanding expanded $11.0 billion to $1.41 trillion in the week ended February 4, 2026, according to Federal Reserve data released Thursday. The increase reflects healthy demand across all three major sectors—financial, nonfinancial, and asset-backed CP—with funding costs holding remarkably steady just 1 basis point below the Fed Funds rate. Credit spreads remain compressed at 17 bps between A2/P2 and AA-rated paper, well within the comfort zone that signals minimal funding stress despite equity market volatility that saw the Nasdaq fall 0.59% and weaker-than-expected retail sales data pressuring Treasury yields lower.

Outstanding Amounts

The $11 billion weekly expansion in CP outstanding marks a healthy rebound after a $3.8 billion monthly decline, suggesting corporate borrowers are comfortably accessing short-term funding markets. At $1.41 trillion, total CP sits comfortably within the 52-week range of $1.26 trillion to $1.47 trillion, roughly at the 72nd percentile of that range—indicating neither excessive leverage nor unusual deleveraging. Notably, all three sectors contributed to the weekly growth: financial CP rose $3.1B to $608.9B (43% of total), nonfinancial CP jumped $6.1B to $347.8B (25%), and asset-backed CP added $2.5B to $446.1B (32%). The balanced growth across sectors—particularly the robust $6.1B increase in nonfinancial CP—suggests broad-based corporate confidence in accessing short-term funding rather than sector-specific dynamics. The stable 32% share for ABCP is particularly reassuring, as this shadow banking barometer tends to contract rapidly when credit conditions deteriorate.

Interest Rates

Fed Funds: 3.64% | 3M T-Bill: 3.59%

Commercial paper rates are trading in an exceptionally tight range relative to Fed Funds at 3.64%, with overnight AA financial CP at 3.62%—just 2 basis points below the policy rate—and 30-day AA paper at 3.62-3.63% across financial and nonfinancial issuers. The minimal -1 bp average spread of CP to Fed Funds indicates zero funding premium, suggesting money market funds and other CP buyers see virtually no credit risk in high-grade corporate paper. The term structure shows a modest upward slope, with 90-day AA financial CP at 3.70%, implying an 8 bp term premium over overnight—a normal, healthy curve that rewards investors for extending duration. Notably, CP trades 4 bps above the 3-month T-bill at 3.59%, a reasonable credit spread that reflects the unsecured nature of commercial paper versus risk-free Treasuries. The flat overnight-to-30-day curve suggests the market expects the Fed to hold rates steady in the near term, consistent with market pricing showing low odds of a March rate cut despite recent soft retail sales data pushing 10-year Treasury yields down to 4.14%.

Credit Spreads

The credit quality spread between A2/P2 and AA-rated nonfinancial commercial paper stands at just 17 basis points, well below the 25 bp threshold that typically signals emerging stress. This tight differential indicates that investors are making minimal distinction between top-tier and second-tier corporate credits, a hallmark of benign funding conditions where liquidity is ample and risk appetite remains healthy. For context, during the March 2020 COVID crisis, this spread exploded above 200 bps as money market funds fled lower-rated paper, and even during mild stress episodes it typically widens to 40-50 bps. The current 17 bp spread suggests CP buyers—primarily money market funds managing $6+ trillion in assets—remain comfortable extending credit down the quality spectrum. This credit compression is particularly notable given the equity market volatility and soft retail sales data that emerged this week, indicating that short-term funding markets are shrugging off concerns that have rattled stock investors.

Credit Spread Trend

Sector Breakdown

The commercial paper market's composition remains well-balanced, with financial issuers representing 43% of outstanding ($608.9B), nonfinancial corporates at 25% ($347.8B), and asset-backed CP at 32% ($446.1B). The $6.1 billion weekly jump in nonfinancial CP is particularly significant, as it suggests corporations outside the banking sector are actively tapping short-term funding for working capital and operational needs. Financial CP's $3.1B increase reflects steady bank and broker-dealer funding activity, while the $2.5B rise in ABCP indicates continued health in the securitization market that packages auto loans, credit card receivables, and other consumer assets. The stable ABCP share at 32% is a positive signal—this segment tends to contract sharply during credit stress as sponsors pull back from providing liquidity support to their conduits.

Funding-Sensitive Stocks

The healthy CP market conditions provide a supportive backdrop for funding-sensitive financial stocks, particularly the major money center banks that are both significant CP issuers and investors. JPMorgan Chase (JPM), Bank of America (BAC), Citigroup (C), and Wells Fargo (WFC) benefit from stable short-term funding costs that protect net interest margins, especially important as the Dow rose modestly while broader indices fell on Tuesday. Regional banks like U.S. Bancorp (USB), PNC Financial (PNC), and Truist (TFC) are even more sensitive to CP market conditions, as funding stress can quickly pressure their liquidity positions. For corporate issuers that rely heavily on commercial paper—including General Electric (GE), Ford (F), and General Motors (GM, which just hired a new head of strategy from Lucid Motors)—the current environment of sub-Fed Funds funding costs represents a tailwind to working capital management. Asset managers like BlackRock (BLK) and T. Rowe Price (TROW) benefit indirectly through their money market fund franchises, which can deploy capital into attractive CP yields without taking meaningful credit risk at current tight spread levels.

Market Implications

The benign CP market conditions stand in notable contrast to the equity market volatility and soft economic data that pressured stocks this week, suggesting a bifurcation between short-term funding markets and risk asset sentiment. Money market funds continue to allocate aggressively to commercial paper at current yields near 3.6%, providing corporations with reliable access to short-term funding even as retail sales disappoint and Treasury yields retreat. This disconnect is important: historically, when CP markets freeze or spreads blow out, it presages broader credit market stress—but the current environment shows no such warning signs. For banks, the stable CP funding environment supports net interest margins and reduces liquidity risk, though the flat overnight-to-30-day rate curve limits opportunities to profit from term transformation. The 4 bp spread of CP over T-bills remains within normal bounds, indicating that credit risk premiums haven't compressed to dangerous levels that would suggest complacency. If the Fed does deliver the one rate cut that JPMorgan strategists expect in 2026, CP rates should drift lower in lockstep, maintaining the current healthy funding dynamics.