The asset-backed commercial paper market is effectively becoming closed for some issuers, including companies that originate mortages.
For instance, dealers in the commercial paper market are currently quoting Countrywide Financial's 30-day commercial paper at a yield of 12.54%--this for a company that was borrowing in that same market at 15 basis points over the London interbank rate, currently around 6%.
It is tough to fund your collateral for new mortgages when you're being asked to pay 12% on your asset backed commercial paper.
A Countrywide spokesperson has not returned a call for comment..
In a report in which it downgraded Countrywide shares today, Merrill Lynch speculated that assuming only modest sale activity in the current market, Countrywide is approaching the $48 billion in highly reliable liquidity it has available, meaning it is very sensitive to reduced market liquidity.
Back on Aug. 2, Countrywide said it has experienced no disruption in financing ongoing operations, including placement of commercial paper.