The crunch in funding continues. As we wrote yesterday, there is $673 billion in Commercial Paper maturing over the next month and a half. The problem is that the rolling of all this paper will come at increasingly higher costs. Today the market for US 7 Day CP hit level of 0.61%. As the chart below indicates, the current CP rate is not only the highest in 2010, but higher than CP costs during the March 2009 market lows. More worrying is that despite the recent unprecedented volatility in daily rate swings, the trend is one of an accelerated increase. At this rate of increase, the Fed may soon need to put the CPFF program back in play.The most worrying is the implication 7 Day CP rates have for the FF rate: while 7 Day CP historically has tracked the Fed Funds tick for tick, over the past few months we have once again seen a major divergence between the two. In this closest proxy to short-term funding, the market is now notifying Bernanke that the Fed Funds rate is now about 36 bps off and increasing.
And the spread to the Fed Funds rate:
h/t Credit Trader