Commercial Paper Spreads Hit 80th Percentile as Total Outstanding Volume Declines

As of the week ending March 18, 2026, the total commercial paper outstanding stands at $1,395.3 billion. This represents a significant weekly decrease of $14.7 billion, indicating a contraction in short-term borrowing activity. The current credit spread between A2/P2 and AA-rated nonfinancial paper has reached 38 basis points. This spread is currently sitting in the 80th percentile of historical data, suggesting elevated stress compared to normal conditions. Meanwhile, the 30-day AA nonfinancial rate is holding at 3.76%, which is 12 basis points above the Fed Funds rate. These figures highlight a period of tightening liquidity and increased costs for lower-rated corporate borrowers.

Outstanding Amounts

The total volume of $1,395.3 billion reflects a month-over-month decline of $8.9 billion alongside the weekly drop. Despite this recent shrinkage, the market remains well within its 52-week range of $1,288.7 billion to $1,472.7 billion. The $14.7 billion weekly decline suggests that some issuers may be finding alternative funding or reducing their short-term debt loads. Interestingly, while the total fell, the financial and nonfinancial sectors actually saw growth in their specific components. The overall decline was driven by broader shifts in the market, possibly related to maturing asset-backed paper. This contraction occurs against a backdrop of equity market weakness, with the S&P 500 down 0.28% today.

Interest Rates

Fed Funds: 3.64% | 3M T-Bill: 3.62%

Current rates show a relatively flat term structure, with overnight AA financial paper at 3.62% and 90-day paper at 3.66%. The 30-day AA nonfinancial rate of 3.76% indicates a premium over the 3.64% Fed Funds rate. This 12-basis-point spread over the benchmark suggests that corporate borrowers are paying a slight premium for liquidity. When compared to the 3-month T-bill rate of 3.62%, the commercial paper market is offering a 14-basis-point pickup. These rates imply that while the Fed's policy remains the primary anchor, market-specific risk is beginning to edge higher. Higher funding costs in the 30-day window could eventually pressure corporate margins if sustained over several months.

Credit Spreads

The credit spread between A2/P2 and AA nonfinancial paper is currently 38 basis points, a key indicator of risk appetite. This spread is significantly higher than the historical median of 24 basis points, placing it in the 80th percentile. A widening spread typically signals that investors are demanding more compensation for taking on lower-quality corporate risk. At 38 basis points, the market is showing clear signs of differentiation between the highest-rated issuers and those with tier-two credit. This level of stress is notable but remains far below the historical peak of 615 basis points seen in extreme crises. However, the upward trend from the median suggests that credit conditions are becoming less accommodative for marginal borrowers.

Credit Spread Trend

Historical Context

Looking at historical parallels, a 38-basis-point spread has occurred during several notable periods, including mid-2023 and early 2025. Historically, when spreads reach these levels, the S&P 500 has shown a median forward return of 4.1% over the following month. The three-month outlook is even more robust, with a median return of 6.9% and a 62% probability of positive performance. For instance, on May 26, 2023, a similar spread of 42 basis points was followed by a 9.0% gain in the S&P 500 over three months. Conversely, a 33-basis-point spread in July 2023 preceded a 6.4% decline, showing that outcomes can vary. Overall, the 80th percentile ranking suggests we are in a period of healthy stress that often precedes equity market recoveries.

Sector Breakdown

The commercial paper market is currently composed of 42% financial paper, 28% nonfinancial paper, and 30% asset-backed paper. Financial CP saw a weekly increase of $7.5 billion, bringing its total to $592.2 billion as banks sought short-term liquidity. Nonfinancial CP also grew by $10.1 billion to reach $384.5 billion, indicating active borrowing by industrial and service corporations. In contrast, Asset-Backed Commercial Paper (ABCP) fell by $4.1 billion to a total of $425.3 billion. This divergence suggests that while corporations and banks are active, the securitized short-term market is seeing some deleveraging. The growth in nonfinancial paper despite higher spreads shows that corporate demand for cash remains resilient.

Funding-Sensitive Stocks

For investors in funding-sensitive stocks, the rise in credit spreads to the 80th percentile is a signal to monitor balance sheet strength. Banks and financial institutions, which represent 42% of the CP market, may face slightly higher interest expenses on their short-term liabilities. Asset managers and money market funds may benefit from the higher yields available in the A2/P2 segment, provided they can manage the risk. Companies with lower credit ratings (A2/P2) will see their cost of capital rise more sharply than their AA-rated peers. This could lead to a performance gap between high-quality cash-rich stocks and those reliant on continuous short-term refinancing. Equity markets today are already reflecting some caution, with the Dow Jones falling 0.44%.

Market Implications

The current environment suggests that while liquidity is available, it is becoming more expensive for the average corporate borrower. The 14-basis-point spread over T-bills indicates that money market funds are finding attractive alternatives to government debt. If the credit spread continues to climb toward the historical high of 615 bps, it could signal a broader systemic credit crunch. However, the current 38-basis-point level is more indicative of a standard tightening cycle rather than a crisis. Banks are still actively issuing paper, as evidenced by the $7.5 billion weekly increase in financial CP. Broader credit conditions remain functional, but the 80th percentile spread suggests the easy money period for short-term debt has passed.