AFP Blogs

Commodities headed for the biggest monthly rally in 34 years, led by energy, as the slumping dollar boosted demand for raw materials as a hedge against inflation. In May, the Reuters/Jefferies CRB Index of 19 energy, metal and agricultural prices has gained 13 percent, the most since July 1974. The dollar headed for the biggest monthly drop this year against a basket of six major currencies.

Signs of a recovery in the global economy have spurred demand for fuel, industrial metals and crops. Crude oil was poised for the biggest monthly gain in a decade, and gasoline has soared more than 30 percent in May. Gold, silver and copper surged, while corn and soybeans reached the highest since September.

The dollar weakened, heading for its biggest monthly decline this year against the euro, as growing evidence that the global recession is easing sent investors in search of assets with higher returns.

The U.S. currency dropped to its lowest level this year versus the euro and weakened most against the Australian and New Zealand dollars. The pound rose through the $1.60 level for the first time since November as increased appetite for riskier assets kept the dollar under pressure.

The cost of borrowing in dollars between banks rose for a second day amid concern some financial companies are still struggling to ride out the two-year squeeze on credit.

The London interbank offered rate, or Libor, for three- month loans increased one basis point to 0.67 percent, according to the British Bankers’ Association. It’s the first time the rate has increased on consecutive days since March 26. It snapped 38 days of declines on Wednesday.

The TED spread, the difference between what banks and the U.S. Treasury pay to borrow for three months, increased to 51 basis points. It’s still near the lowest level since August 2007 when the credit crisis began.

The Libor-OIS spread, another gauge of banks’ reluctance to lend, was at 46 basis points, the highest since May 20. It averaged 11 basis points in the five years preceding the financial crisis. The spread between three-month Libor and the Fed’s target rate for overnight loans between banks was 42 basis points today, twice the average in the five years through July 30, 2007.

Global Capital Markets 

Electricite de France SA, Europe’s biggest power producer, and Carlsberg Breweries A/S led 20 billion euros ($28 billion) of bond sales this week as investor demand spurred companies to raise cash. EdF sold 1.5 billion pounds ($2.4 billion) of 25-year bonds while Copenhagen-based Carlsberg raised $1.8 billion in euros and pounds in its first issue since 2004. Weekly issuance exceeded the 19.2 billion-euro average, driving the total for the year to a record 576 billion euros.

Citigroup Inc. sold $2 billion in 10-year notes last Friday that were not guaranteed by the U.S. government. The bank joins the growing list of financial companies selling unguaranteed debt to raise capital — and prove they do not need the government’s help to do so. JPMorgan Chase & Co., American Express Co. and U.S. Bancorp issued debt without government backing last week. Morgan Stanley, Bank of New York Mellon Corp., Goldman Sachs Group Inc., Northern Trust Corp. and BB&T Corp. have recently sold unguaranteed debt, too.

Warner Music Group more than doubled the size of its planned debt issuance to $1.1 billion on Wednesday, and Moody’s Investors Service upgraded the company’s credit rating. Warner said in a filing on Wednesday that its subsidiary, WMG Acquisition Corp., will offer the 7-year senior secured notes, using the proceeds plus $335 million in existing cash to pay off and close a secured credit line. The offering prompted Moody’s Investors Service to upgrade the company’s credit rating, raising its probability of default rating two notches to Ba2 from B1, and both senior discount and subordinated bonds to B1 from B3. Both ratings are still non-investment, or “junk,” grade.

Nalco Holding Co., a manufacturer of water treatment chemicals, says a subsidiary completed a $1.25 billion refinancing that will be used to retire debt and replace another loan. The refinancing by Nalco Co., the wholly owned subsidiary, replaces most of a term loan due in November 2010 and, with cash on hand, will be used to retire $475 million of senior notes that would otherwise be due in November 2011. The refinancing includes $750 million in new loans due in 2016 and $500 million of new senior notes due in 2017. The arrangements also include a new five-year, $250 million revolving credit facility supplied by seven banks, replacing the revolving credit facility that would have expired this November.

Speculative-grade borrowers are marketing debt this week after raising $1.3 billion yesterday, bringing monthly sales to the most since October 2007. Apria Healthcare Group Inc., which raised $700 billion to refinance a bridge loan arranged for its leveraged buyout in October 2008, and oil and natural gas producer Berry Petroleum Co. were among five issuers who sold high-yield, high-risk bonds on Thursday. May sales climbed to $17.5 billion, the most since junk- rated companies raised $19.6 billion in October 2007, 

U.S. Treasuries 

Treasuries headed for a weekly loss amid speculation the U.S. may lose its AAA credit rating as the Treasury prepares to sell $162 billion of notes and bonds next week to finance the budget deficit. Yields on 10-year notes climbed to 3.42 percent, a level not seen since Nov. 19, after Standard & Poor’s cut its outlook on the U.K.’s AAA credit rating yesterday and Pacific Investment Management Co.’s co-chief investment officer, Bill Gross, said the U.S. will “eventually” lose its top rating.

The Federal Reserve bought $7.699 billion of Treasuries maturing between February 2016 and February 2019 as part of the central bank’s effort to reduce lending rates and lift the world’s largest economy out of recession. 

Commercial Paper Market 

The global credit crisis and weak economy continued to corrode the U.S. CP market, which shrank to its lowest level outstanding in at least five years, Federal Reserve data showed on Thursday. For the week ended May. 20, the size of the U.S. CP market fell by $14.0 billion to $1.284 trillion outstanding, down from $1.298 trillion outstanding the previous week. The overall U.S. CP market peaked at about $2.2 trillion outstanding in August 2007 when the credit crisis erupted.

Asset-backed CP outstanding fell by $25.8 billion in the latest week after contracting by $23.0 billion the previous week. But unsecured financial issuance outstanding rose by $3.8 billion after falling by $47.3 billion the previous week. 

LIBOR 

The cost of borrowing in dollars between banks for three months had its biggest weekly drop this year as central-bank cash injections and interest-rate cuts made financial institutions less wary of offering credit. The London interbank offered rate, or Libor, for such loans was little changed at 0.66 percent on Friday, bringing its decline this week to 17 basis points, the most since the five days through Dec. 19, when it declined 42 basis points. The rate more than halved this year. Libor is used to set borrowing costs on about $360 trillion of financial products globally, according to the BBA.

The TED spread, the difference between what banks and the U.S. Treasury pay to borrow for three months, narrowed six basis points, or 0.06 percentage point, to 49 basis points today, the least since August 2007, when the credit crisis began. It peaked at 464 basis points on Oct. 10.

The Libor-OIS spread, another gauge of banks’ reluctance to lend that measures the difference in the three-month rate and the overnight indexed swap rate, decreased to 46 basis points, the least since February 2008. It has dropped from as high as 364 basis points in October. The rate is still above the 25 basis point level that Federal Reserve Chairman Alan Greenspan has said would mark a return to normal. 

Credit Ratings 

Britain may lose its AAA credit rating for the first time as government finances deteriorate in the worst recession since World War II. Standard & Poor’s lowered its outlook on Britain to “negative” from “stable” and said the nation faces a one in three chance of a ratings cut as debt approaches 100 percent of gross domestic product. 

Banking 

BankUnited Financial Corp., the ailing Florida lender, was shut by federal regulators and its assets were sold to private-equity firms including WL Ross & Co. and Carlyle Group in the largest U.S. bank failure this year. The group’s purchase of the bank, deemed “critically undercapitalized” by the Office of Thrift Supervision, was the “least costly” resolution, the Federal Deposit Insurance Corp. said today in a statement. The closing will cost the insurance fund $4.9 billion, pushing the total cost of 34 seizures so far this year. 

TALF 

The Federal Reserve will include legacy assets for the first time in a $1 trillion program to revive credit markets, expanding the effort to commercial real estate securities issued before the start of this year.

The central bank also expanded the number of credit-ratings companies permitted to rate assets for the Term Asset-Backed Securities Loan Facility to five.  

Credit Cards 

JPMorgan Chase & Co. sold $1 billion of bonds that are backed by credit-card payments and aren’t financed using loans from a U.S. program aimed at jump-starting lending, showing investors’ growing appetite for the debt. The top-rated securities yield 115 basis points more than the benchmark swap rate. The sale, initially set at $700 million, is the first public offering this year of credit-card bonds without the aid of the Federal Reserve’s Term Asset-Backed Securities Lending Facility. 

Munis

Municipal bond sales rose to a four- week high of $9 billion as states and localities, led by New York City, expanded offerings to take advantage of yields that have dropped a percentage point or more the past six months.

IPOs 

Shares of SolarWinds Inc. climbed Wednesday during the network management software maker’s first day of trading, marking the latest flicker of life in an IPO market that has barely registered a pulse this year. SolarWinds shares rose $2.19, or 17.5 percent, to $14.69 in afternoon trading. The stock trades on the New York Stock Exchange under the ticker “SWI.” The Austin, Texas-based company’s offering raised $151.5 million, since it priced 12.12 million shares of common stock at $12.50 per share on Tuesday night.

BankUnited Financial Corp., the ailing Florida lender, was shut by federal regulators and its assets were sold to private-equity firms including WL Ross & Co. and Carlyle Group in the largest U.S. bank failure this year. The group’s purchase of the bank, deemed “critically undercapitalized” by the Office of Thrift Supervision, was the “least costly” resolution, the Federal Deposit Insurance Corp. said today in a statement. The closing will cost the insurance fund $4.9 billion, pushing the total cost of 34 seizures so far this year.

Today, the Federal Reserve expanded the number of credit-ratings companies permitted to rate assets for the Term Asset-Backed Securities Loan Facility (TALF) to five.

The Fed said newly issued and older CMBS must have at least two AAA ratings from DBRS, Fitch Ratings, Moody’s Investors Service, Realpoint LLC or Standard & Poor’s and can’t have a rating below AAA from any of them. The Fed said it’s “more broadly” determining which ratings companies to use to determine eligible collateral for the central bank’s credit programs.

Global Capital Markets 

Microsoft Corp., the world’s biggest software maker, and Wal-Mart Stores Inc. were among companies selling $32.6 billion of debt this week as investors show signs of pulling back after a seven-week credit rally.

Wal-Mart, the world’s largest retailer, raised $1 billion of notes, and Redmond, Washington-based Microsoft sold $3.75 billion of bonds in its debut issue. Companies sold $29.4 billion of debt without government backing this week, down 15 percent from $34.7 billion the week before when borrowers raised the most debt without a sovereign guarantee in a year.

Fannie Mae , the largest U.S. home funding company, sold $5 billion of new five-year notes at the smallest risk premium over Treasuries for a new issue of this maturity since October 2007. The agency sold the new 2.50 percent notes to yield 56 basis points more than Treasuries, the smallest spread since 47.5 basis points on a $4 billion five-year offering more than a year and a half ago. The pricing shows considerable improvement from the March sale of a record $9 billion in five-year notes from Fannie Mae, which had a 2.75 percent coupon and yielded 90 basis points more than Treasuries.

BNP Paribas SA, France’s largest lender, and Spanish savings bank La Caja de Ahorros y Pensiones de Barcelona are driving the busiest week of sales for covered bonds in almost a year. Sales of the debt backed by home and public-sector loans jumped to 6.7 billion euros ($9 billion), the most since June. Paris-based BNP Paribas raised 1.25 billion euros from the bonds, while La Caixa, as the Spanish bank is known, is seeking buyers for five-year notes. Lenders are stepping up sales of the debt after the European Central Bank said last week it will buy 60 billion euros of covered bonds to help ease the credit crisis. Sales of the securities, which are guaranteed by the borrower, have almost halved this year to 56 billion euros as investors favored government-backed bank debt.

Investment Dar Co., the owner of half of Aston Martin Lagonda Ltd., missed a payment on $100 million of debt, becoming the first Persian Gulf company to default on Islamic bonds. The market for bonds that avoid paying interest to comply with Islam ballooned from almost nothing in 2002 to $90 billion as surging energy prices spurred borrowing in the Persian Gulf and Asia. Prices for the debt have tumbled since as investors avoided. 

U.S. Treasuries 

Ten-year note yields have fallen 27 basis points, or 0.27 percentage point, from the 2009 high of 3.38 percent, touched on May 8, amid a two-week hiatus in the government’s auction schedule. The central bank bought $2.975 billion of Treasuries maturing from October 2010 to February 2011 as part of an effort to lower consumer borrowing costs.  

Commercial Paper Market 

The U.S. CP market contracted to its lowest level outstanding in more than five years as the global credit crisis and deep economic downturn eroded it further, Federal Reserve data showed on Thursday.

For the week ended May 13 the size of the market dropped $81.1 billion to $1.298 trillion outstanding, the lowest since January 2004, and down from $1.379 trillion outstanding the previous week. The overall CP market peaked at about $2.2 trillion outstanding in August 2007 when the credit crisis erupted.

Asset-backed CP outstanding fell to $600.2 billion in the latest week. Unsecured financial issuance outstanding fell by $47.3 billion, following the prior week’s $21.5 billion contraction. 

LIBOR 

The cost of borrowing in dollars between banks fell, capping its biggest weekly decline in four months, as government cash injections and interest-rate cuts led by the Federal Reserve began to thaw credit markets.

The London interbank offered rate, or Libor, for three- month loans in dollars decreased almost two basis points to 0.83 percent on Friday, the British Bankers’ Association said. The TED spread, the difference between Libor and the three- month Treasury bill yield, dropped three basis points to 67 basis points today, the least since Aug. 8, 2007, the day before France’s BNP Paribas SA halted withdrawals from three of its funds because of losses related to subprime mortgages. The Libor-OIS spread, a measure of the unwillingness of banks to offer each other cash, narrowed three basis points to 65 basis points, the lowest level since June 16.  

Credit Ratings 

A massive $541.2 billion of rated debt defaulted in the first three months of this year, the biggest quarterly amount ever, according to Standard & Poor’s.

Sixty-two companies defaulted worldwide, the largest number since the first quarter of 2002, S&P said in a report today. Of the total, 40 were in the U.S., the New York-based ratings company said. The global speculative-grade default rate reached 2.2 percent in the first quarter, compared with 0.47 percent in the period a year earlier.

Moody’s Investors Service has downgraded the long- and short-term ratings of student loan lender SLM Corp., better known as Sallie Mae, citing concerns about the company’s earnings and cash flow given that the Obama administration has asked Congress to eliminate subsidies to private lenders. The ratings agency on Wednesday dropped its rating on the company’s senior unsecured debt into junk status, lowering it two notches to “Ba1″ from “Baa2,” with a negative outlook. Moody’s had put the Reston, Va.-based lender’s ratings on review for possible downgrade on Feb. 27.

Moody’s Investors Services on Tuesday cut its ratings on PNC Financial Services Group Inc., citing implications from its acquisition late last year of National City Bank. The ratings agency cut Pittsburgh-based PNC Financial Services Group Inc.’s senior debt rating to “A3″ from “A1,” its subordinated debt rating to “Baa1″ from “A2″ and the preferred stock rating to “Baa2″ from “A3.” The holding company’s short-term debt rating was downgraded to “Prime-2″ to “Prime-1.” 

Banking

Westsound Bank in Bremerton, Washington, was seized by a state regulator this past Friday, bringing the tally of failed U.S. banks to 33 this year. 

TALF 

Yields on top-rated bonds backed by credit-card payments and auto loans fell relative to benchmark interest rates as the Federal Reserve’s program to spur consumer lending had its highest volume since starting in March.

The gap, or spread, on AAA rated securities backed by credit cards and maturing in two years narrowed 50 basis points to 180 basis points more than the one-month London interbank offered rate during the week ended May 7. Spreads on similar debt backed by auto loans fell 30 basis points to 150 basis points more than Libor, the data show.

The Fed received $10.6 billion in loan requests to purchase asset-backed bonds through its Term Asset-Backed Securities Lending Facility last week in a sign that the program is gaining traction with investors. Investors sought $1.7 billion in TALF loans at the prior funding on April 7, down from $4.7 billion at the initial funding in March.  

TARP

The Treasury Department has agreed to extend billions in bailout funds to six major life insurers, following a months-long quest by some in the sector for government help in shoring up capital positions in the wake of major investment losses.

The Hartford Financial Services Group Inc. was the first to disclose Thursday that it had been notified by the Treasury Department that it was eligible for $3.4 billion from the Troubled Asset Relief Program, or TARP. Lincoln National Corp., which commonly goes by the name Lincoln Financial Group, said it has been initially approved for a $2.5 billion injection from TARP’s Capital Purchase Program. Allstate Corp., Ameriprise Financial Inc., Principal Financial Group Inc. and Prudential Financial Inc. also are among insurers receiving preliminary investment approval,

Credit Cards

Advanta Corp., the credit-card issuer for small businesses, may leave 1 million customers scrounging to find new lenders and debt holders facing losses of 35 percent after the company shut down accounts to preserve capital.

M&A 

Frontier Communications Corp., the U.S. phone company serving rural markets, agreed to buy assets from Verizon Communications Inc. in a transaction valued at about $8.6 billion to triple its access lines. The transaction, which includes about $3.3 billion in debt, covers about 4.8 million phone lines across 14 states, the companies said in statements today. 

Munis

Municipal bond sales rose to a three- week high of about $6.8 billion as San Diego took advantage of falling yields and a lull in California issuance to bring to market a refinancing deal a week sooner than planned.

Global Capital Markets 

Morgan Stanley raised $7.5 billion selling stock and debt, 50 percent more than it announced on Thursday, to cover a $1.8 billion capital shortfall and repay government bailout funds. The bank raised $3.5 billion by selling 146 million shares at $24 apiece, 12 percent below yesterday’s closing price. The New York-based company also sold $4 billion in debt in its first transaction not guaranteed by the U.S. Federal Deposit Insurance Corp. since that backing became available last year.

Kinder Morgan Energy Partners LP, the largest U.S. pipeline partnership by market value, sold $1 billion of debt. The $300 million of 5.625 percent notes due 2015 priced to yield 350 basis points more than similar-maturity Treasuries and the $700 million of 6.85 percent bonds due 2020 paid a spread of 362.5 basis points. The Houston-based company’s debt is rated Baa2, the second- lowest level of investment grade, by Moody’s Investors Service and an equivalent BBB by Standard & Poor’s.

Royal Dutch Shell Plc, Europe’s largest oil company, and drug maker Sanofi-Aventis SA led 22.4 billion euros ($30 billion) of bond sales, extending the year’s record issuance as private investors stoked demand for the debt. Sales rose above the 19 billion-euro weekly average for the past 12 months, pushing the 2009 total to 513 billion euros. Sanofi raised 3 billion euros from its bond sale after receiving orders for seven times the amount, the Paris-based firm said. Shell’s sale of 5 billion euros of debt was also oversubscribed.

Junk bond sales surged to the most in almost 11 months as companies with weaker credit ratings took advantage of the biggest high-yield bond rally on record to pay down debt. Borrowers sold $7.9 billion of high-yield, high-risk bonds this week, the most since the week ended June 27 and more than five times the 2009 weekly average of $1.4 billion. Teck Resources Ltd., a Vancouver- based metals producer, raised $4.23 billion in the largest junk bond sale since June 2008. Goodyear Tire & Rubber Co. based in Akron, Ohio, raised $1 billion, double the size of its initial offering. Companies are rushing to market after junk bonds rallied the most in at least 23 years and yields on the debt plunged to an eight-month low relative to benchmark rates. More borrowers are gaining access to credit because investors are scrambling to boost returns. 

U.S. Treasuries 

Treasuries are suffering their biggest losses since 1994 so far this year as investors turn to higher- yielding assets on signs the worst of the recession is over. After posting a gain of 14 percent in 2008 as investors sought a refuge from mounting losses on securities tied to subprime mortgages, Treasuries have lost 3.95 percent since December. 

Central Banks 

The European Central Bank cut its key interest rate to a new record low of 1 percent today, and may offer banks longer-term loans to stem the region’s worst recession since World War II. ECB officials meeting in Frankfurt lowered the benchmark rate by a quarter point. 

Commercial Paper Market 

The U.S. commercial paper market contracted to its lowest level outstanding in more than four years as the deep economic downturn continued to erode it, Federal Reserve data showed on Thursday.

For the week ended May 6, the size of the U.S. commercial paper market fell by $43.2 billion to $1.379 trillion outstanding, the lowest level since December 2004. The overall U.S. commercial paper market peaked at about $2.2 trillion outstanding in August 2007, just as the credit crisis broke out. Asset-backed commercial paper outstanding contracted by $22.8 billion in the latest week after shrinking by $25.8 billion the previous week. Unsecured financial issuance outstanding fell $21.5 billion after contracting by $18.7 billion the previous week. 

LIBOR 

The cost of borrowing dollars among banks in London capped its biggest weekly drop since March as government stress tests showed U.S. financial institutions may be able to withstand the economic slump.

The London interbank offered rate, or Libor, that banks charge for three-month loans fell two basis points to 0.94 percent today, according to the British Bankers’ Association, bringing its decline in the week to seven basis points, the most since the five days through March 20. The Libor-OIS spread, a barometer of the unwillingness of banks to lend, fell today to the lowest level in more than nine months.

The cost of three-month dollar loans between banks fell below 1 percent for the first time ever on Tuesday.

The Libor-OIS spread, the difference between three-month dollar Libor and the overnight index swap rate, narrowed two basis points to 73 basis points today, the lowest level since Aug. 1. The TED spread, the difference between what the U.S. Treasury and banks pay to borrow for three months, also narrowed two basis points, to 76 basis points, the lowest since May 27.

Libor, which determines rates on everything from mortgages to student loans, surged as high as 4.82 percent in October following the failure of Lehman. The Libor-OIS spread ballooned to 364 basis points.  

Credit Ratings 

Credit ratings agency Standard & Poor’s is reviewing whether to cut the ratings of 23 regional and national banks. The firms were placed on “CreditWatch Negative” on Monday, which means there is a 50 percent chance the ratings will be cut in the next three months. S&P said it expects the results of the reviews by the end of May. 

Banking

Regulators seized banks in Georgia, New Jersey and Utah this past Friday, boosting the tally of failed lenders in the U.S. this year to 32 and tapping more than $1.4 billion from the federal government’s deposit-insurance fund.

Bankruptcies 

Discount retailer Filene’s Basement says it has filed to reorganize under Chapter 11 bankruptcy protection, less than two weeks after its new owner said it was reviewing “all available options.” 

TALF 

The Federal Reserve said investor requests for loans to buy asset-backed securities rose to $10.6 billion from last month as sales of eligible bonds increased, signaling greater interest in the emergency credit program. Investors sought funds from the Term Asset-Backed Securities Loan Facility to purchase securities backed by auto, credit card, education, small business and equipment loans, the New York Fed bank said. About $13.5 billion of bonds were eligible for TALF loans, also the highest monthly tally so far.  

CDS

The cost of protecting corporate bonds from default fell to the lowest since the collapse of Lehman Brothers Holdings Inc. on speculation banks will resume lending after withstanding Federal Reserve stress tests. Credit-default swaps on the benchmark CDX North America Investment-Grade Index dropped 8.5 basis points to 135.5, the lowest since Aug. 18.

AMLF

Investors sold about $25 billion of asset-backed commercial paper through a Federal Reserve program; the most in seven months, after a change to the facility had significant unexpected consequences. Fed holdings of the debt under the facility rose to $29 billion during the week ended May 6 from $3.7 billion a week earlier, the central bank said on Thursday. The Fed in April began excluding short-term debt on negative watch from its Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, or AMLF.

Global Capital Markets

Investment-grade corporate bond sales fell last month by the most in five years, interrupting a record pace of offerings, as borrowers that had caught up on refinancing paused before a rush in May. Issuance from investment-grade companies dropped 53 percent from March to $69 billion, the biggest April decline since 2004.

Investment-grade borrowers sold $21.1 billion of debt this week, compared with $10.3 billion in the previous week. Goldman Sachs, Northern Trust Corp., BB&T Corp. and Credit Suisse offered $5.6 billion of debt this week, the biggest for dollar-denominated issuance without government guarantees from banks and financial companies since August.

Banks have issued $235 billion of bonds under the Federal Deposit Insurance Corp.’s Temporary Liquidity Guarantee Program since they began using it on Nov. 25.

Nokia, based in Espoo, Finland, sold $1 billion of 10-year, 5.375 percent notes that priced at a spread of 237.5 basis points, and $500 million of 6.625 percent bonds due in 30 years that paid 262.5 basis points.

High-yield companies sold $2.1 billion of bonds this week, the same as the week before. Supervalu Inc., the second-biggest U.S. supermarket chain, sold $1 billion of senior unsecured notes due 2016. 

The ten-year note yield rose 12 basis points this week as the U.S. sold $101 billion in notes and said it plans to auction $71 billion in notes and bonds next week. They have advanced 48 basis points during the six-week climb.

Central Banks

New Zealand’s central bank cut its benchmark interest rate by half a percentage point to a record 2.5 percent and said borrowing costs will stay low until late next year to help the economy recover from a recession.

Brazil’s central bank cut its benchmark interest rate for a third-straight time to a record as it seeks to prevent the economy from contracting this year. Policy makers voted unanimously to lower the so-called Selic rate to 10.25 percent from 11.25 percent. The move follows cuts of 150 basis points last month and 100 basis points in January.   

Commercial Paper Market 

The U.S. commercial paper market shrank by $49.7 billion in the week ended April 29, according to data released by the Federal Reserve on Thursday. The bulk of the decline this week, $25.8 billion, came from the asset-backed segment.

Last week the market declined by $1.7 billion on a seasonally adjusted basis. The week before, the decline was $59.6 billion. The asset-backed segment of the market saw a drop of $9.9 billion last week.

The overall size of the market is now $1.42 trillion, substantially lower than the peak of $2.2 trillion in July 2007.

The size of the Federal Reserve’s balance sheet fell the most in seven years as companies renewed less of the 90-day debt that was taken on by the central bank and other borrowing declined. Commercial paper held by the Fed fell to $179.4 billion as of yesterday from $240.4 billion, the biggest drop since the original batch of 90-day debt matured in January.

Money Market Assets

Total money market mutual fund assets fell by $8 billion to $3.798 trillion for the week. Assets of the nation’s retail money market mutual funds fell by $15.33 billion in the latest week to $1.296 trillion. Assets of taxable money market funds in the retail category fell by $10.75 billion to $1.02 trillion for the week ended Wednesday. Retail tax-exempt fund assets fell by $4.59 billion to $275.86 billion. Assets of institutional money market funds rose by $7.33 billion to $2.502 trillion for the same period. Among institutional funds, taxable money market fund assets rose by $7.94 billion to $2.315 trillion; assets of institutional tax-exempt funds fell by $609 million to $187.48 billion.

The seven-day average yield on money market mutual funds fell in the week ended Tuesday to 0.19 percent from 0.2 percent the previous week. The average maturity of the portfolios held by money funds was 49 days, down from 50 days. 

LIBOR 

The London interbank offered rate, or Libor, for three- month dollar loans, fell to 1.02 percent yesterday, extending a six-week decline. The difference between that rate and what the Treasury pays to borrow for three months, the so-called TED spread, was 89 basis points, near the lowest since June.  

Credit Ratings 

Standard & Poor’s Ratings Services lowered its ratings Friday on diversified lender CIT Group Inc. to “BBB-” from “BBB,” citing its wider-than-expected first-quarter loss. 

Banking 

Federal regulators shut down Silverton Bank in Atlanta on Friday. With $4.1 billion in assets, Silverton is the fifth largest bank to fail since the financial crisis intensified in 2008. Silverton is the 30th bank to fail this year. Last Friday, regulators seized banks in Georgia, Michigan, California and Idaho with total assets of $2.3 billion. 

The banking industry lost $32.1 billion from October through December, the first aggregate quarterly loss since 1990. 

Bankruptcies 

Chrysler, the nation’s third-largest automaker, filed for Chapter 11 bankruptcy protection Thursday with an ambitious plan to emerge in as little as 30 days as a leaner, more nimble company.  

TALF 

The Federal Reserve authorized longer- term loans for investors buying securities backed by commercial mortgages in a $1 trillion emergency credit program, taking a step the industry said was needed to avert loan defaults. Beginning in June, the Fed will offer five-year loans at higher interest rates than the three-year loans previously approved for the Term Asset-Backed Securities Loan Facility, the central bank said today in a statement from Washington. The Fed will also accept securities backed by loans designed to help small businesses buy insurance.

When making payments to China, be absolutely sure you have the proper to documentation to do so, said Bill Lowe, SVP and Treasurer of LiveNation, Inc. “If you’re trying to bring money to fund your business or a shareholder loan, it’s especially important because that money has to come back out eventually,” he said. The first step you should take is to talk to your tax advisor and/or legal counsel, Lowe added.

In a question-and-answer period, Bell said the size of banks will be reduced. “It’s too difficult to manage” a trillion-dollar financial institute. “You’ll bank more and more with the locals.”

Asked about the economic impact of the swine flu pandemic, noting that the Mexican economy is in dire condition, Bell said, “Mexico has been very hurt. The answer for here is, ‘I don’t know.’ SARS had a temporary effect on the economy. These pandemics, unless you get something like the flu epidemic in 1918, the economy bounces back quickly. It will have some effect but not that serious.”