commercial paper

noun

Definition of commercial paper 

: short-term unsecured discounted paper usually sold by one company to another for immediate cash needs

Examples of commercial paper in a Sentence

Recent Examples on the Web

For companies, rising rates have touched off changes in a variety of debt markets, including commercial paper, a type of short-term IOU, and credit facilities, which typically operate like a credit line. Matt Wirz, WSJ, "Companies Look to Libor for Debt Savings as Rates Rise," 28 May 2018 Lend to high-quality companies for 30 days in the commercial paper market, and the yield of 2.4% is above inflation and more than the 1.95% dividend yield from the S&P 500. James Mackintosh, WSJ, "Cashing In: Why Cash Should Be in Your Portfolio Again," 5 Apr. 2018 Domestic and foreign issuance of financial sector commercial paper has also shrunk in this time, indicating banks are tapping this channel for less funding. Paul J. Davies, WSJ, "Banking System Alarm Bell That Doesn’t Signal Danger," 28 Mar. 2018 Three-month financial commercial paper rates have risen by about 45 basis point this year, while the one-month maturity increased a fraction of that. Liz Mccormick, Bloomberg.com, "Analyst Who Saw Rigged Libor Sees Credit Forces Helping Fuel Run," 20 Mar. 2018 Prime money funds haven’t made their biggest cuts in holdings of commercial paper. Paul J. Davies, WSJ, "Banking System Alarm Bell That Doesn’t Signal Danger," 28 Mar. 2018 And bank lending grew apace after negative rates were introduced in January 2016 (see chart), even as firms have taken advantage of low borrowing costs to issue more of their own bonds and commercial paper. The Economist, "Japan’s central bank chooses continuity over tradition," 22 Feb. 2018 Most money funds never buy commercial paper rated below the top rung of investment grade. Katy Burne, WSJ, "A Key Borrowing Spigot Opens for Ford," 10 July 2017 Many of the money-market funds are invested largely in bank certificates of deposits, commercial paper and government debt. WSJ, "World’s Largest Money-Market Fund Will Lower Its Returns, Shed Risk," 25 Sep. 2017

These example sentences are selected automatically from various online news sources to reflect current usage of the word 'commercial paper.' Views expressed in the examples do not represent the opinion of Merriam-Webster or its editors. Send us feedback.

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First Known Use of commercial paper

1836, in the meaning defined above

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Last Updated

18 Sep 2018

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The first known use of commercial paper was in 1836

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More Definitions for commercial paper

commercial paper

noun

Financial Definition of commercial paper

What It Is

Commercial paper is an unsecured and discounted promissory note issued to finance the short-term credit needs of large institutional buyers. Banks, corporations and foreign governments commonly use this type of funding.

How It Works

Exempt from SEC registration, commercial paper generally matures in a short period of time and usually does not exist for more than 270 days. The average maturity of commercial paper is between 30 and 35 days. The average investment is about $100,000, but some commercial paper investments are made in multiples of $1 million or more. It is not uncommon for issuers to adjust the amounts and/or the maturities of commercial paper to suit the investment needs of a particular buyer or group of buyers.

Commercial paper is usually issued by companies with very high credit ratings. Because of this, and because it generally matures in a very short period of time, commercial paper tends to be a very low-risk investment. Most commercial paper is assessed by more than one rating agency. The four primary agencies are: Moody's, Standard & Poor's, Fitch, and Duff & Phelps.

Although commercial paper is occasionally issued as an interest-bearing note, it typically trades at a discount to its par value. In other words, investors usually purchase commercial paper below par and then receive its face value at maturity. The discount, or the difference between the purchase price and the face value of the note, is the interest received on the investment. All commercial paper interest rates are quoted on a discounted basis.

Why It Matters

Commercial paper is issued by a wide variety of domestic and foreign firms, including financial companies, banks, and industrial firms.

Major investors in commercial paper include money market mutual funds and commercial bank trust departments. These large institutional investors often prefer the cost savings inherent in using commercial paper instead of traditional bank loans.

Source: Investing Answers

commercial paper

Legal Definition of commercial paper 

see paper

More from Merriam-Webster on commercial paper

Britannica.com: Encyclopedia article about commercial paper

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