An end to easy money

Liquidity has been in retreat in the US commercial paper market, leading to the unthinkable – companies drawing down their backstop facilities. Crises at companies such as Tyco and ABB provide a warning to other issuers about the need to balance short-term with long-term funding. And as David Watts reports, while a full-blown credit crunch is being ruled out, things could get worse before they get better.

Horror is seeing but not believing – your eyes tell you one thing, your brain tells you another. That is a reasonably accurate description of what has been happening over recent weeks and months in the US commercial paper market. For example, until they had seen it, few would have imagined that Tyco would be forced to draw on all of its backstop CP facilities, and find itself downgraded after approaching its banks. “What happened at Tyco was shocking,” says an investment banker in London.