What is a commercial paper market?
Commercial paper is a money-market security issued by large corporations to obtain funds to meet short-term debt obligations (for example, payroll) and is backed only by an issuing bank or company promise to pay the face amount on the maturity date specified on the note.
Does commercial paper have market risk?
Commercial paper is also a low-risk asset—one that carries little risk of default—because the typical issue has such a short maturity and is the liability of a high-quality firm.
Does commercial paper have a secondary market?
Is there a secondary market for commercial paper? Yes, but it is limited. CP has a very short maturity and most investors in the CP market purchase CP at issuance and hold it until maturity. If investors sell CP, they typically sell CP back to CP dealers.
Is commercial paper a good investment?
Commercial paper can be good for investors, as it often yields a greater return than government-backed debt securities such as Treasury bonds and Treasury bills. The trade-off is that, as with any investment, commercial paper has its fair share of risk.
Why is commercial paper unsecured?
Commercial paper is not usually backed by any form of collateral, making it a form of unsecured debt. Because commercial paper is issued by large institutions, the denominations of the commercial paper offerings are substantial, usually $100,000 or more.
Is commercial paper an asset?
The primary difference between commercial paper (CP) and asset-backed commercial paper (ABCP) is that commercial paper is not backed by assets. Commercial paper (CP) is a money market security issued by large corporations to raise money to meet short-term obligations.
Is commercial paper primary market?
Most commercial paper is bought in the primary market. The primary market consists of directly placed and dealer-placed paper. Directly placed commercial paper is sold directly to the investor by the issuer without the services of a securities firm.