A Frightful Outlook for Financing

Boo! That's what investors who operate on the short end of the yield curve have been saying all year, and issuers have been fleeing the sector in fright. While some might find the topic dry, financing has tremendous implications for companies and the economy.

Earlier this year, I noted the forces that were causing money-fund assets to soar. I cringed when I saw news reports screaming last spring that nearly $2 trillion in money market funds was just waiting to flood the stock market. This money flowing into funds was simply an arbitrage game, with institutions that normally bought instruments directly switching to the higher yields that money funds offer in a declining yield environment.

The Commercial Paper Situation

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