Commercial paper

Unsecured short-term debt sold directly to investors by large, highly rated issuers, usually maturing within months. Cheaper than bank borrowing, but it depends on investors continuing to roll it over.

Where you will meet it

Commercial paper appears in 3 learning outcomes on the CFA syllabus. A few of them:

• Contrast the short-term financing options open to companies and to financial institutions
  CFA Level I · Fixed Income

  “They can also secure loans against receivables or inventory, and larger, well-rated companies issue commercial paper, which is short-term, unsecured and usually backed by a liquidity line to cover rollover risk.”

• Set out where firms can raise short-term funds
  CFA Level I · Corporate Issuers

  “Commercial paper is unsecured short-term debt issued directly to investors and is available only to strong credits, at rates below bank borrowing.”

• Explain the short-term rate spreads that serve as gauges of credit and liquidity risk across the economy
  CFA Level II · Fixed Income

  “The same idea now uses rates still published, such as an unsecured bank or commercial paper rate against OIS or against a secured overnight rate like SOFR.”

Practise it

• Today's practice question One question, with every wrong option explained.
• Free Level I diagnostic test Twelve questions that show which topics to start with.
• Free finance calculators Check your arithmetic on the exam's core formulas.

All terms beginning with C · Glossary