Short-term unsecured corporate debt, usually issued at a discount with a maturity under 270 days, used to fund working capital.
Only strong investment-grade borrowers can issue CP cheaply, and they roll it constantly. That rollover is the weak point: in a credit freeze, buyers disappear and issuers must draw bank credit lines instead, which is how a funding problem becomes a systemic one.
The spread of CP over treasury-bills of the same maturity is a fast-moving stress indicator, widening long before rating agencies react.
Example: a company issues $100,000,000 of 90-day CP priced at a 5.40% discount rate. It receives $98,650,000 today and repays $100,000,000 in 90 days.
Original diagrams for the ideas on this page. Illustrative, not real market data.
The bid-ask spread. Buy orders sit below, sell orders above, and the gap between the best bid (50.01) and best ask (50.04) is the spread you pay to cross. Bar length shows the size resting at each price.
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