Asset-Backed Commercial Paper (ABCP)

Asset-backed commercial paper is a type of investment that is short-term in nature. Asset-backed commercial paper is often issued by large, well-established companies or financial institutions. This is essentially a type of short-term note that typically lasts for approximately 90 days to 180 days. 

Collateral

This type of short-term note is backed by an asset that is owned by the issuing company. In many cases, the notes are backed with receivables. This means that when the receivables are paid by the companies that owe them, the money will then be passed on to the investors in order to repay them for their investment. Asset-backed commercial paper is commonly used in the money market. Money market funds will purchase commercial paper from companies and financial institutions that are considered to be very safe. This gives the money market mutual fund a short-term investment that will pay a small amount of interest for the investors. Since it matures in less than 180 days, this still qualifies for money market consideration.

Money market mutual funds have to be careful which companies they work with because some companies have defaulted on commercial paper obligations in the past due of financial difficulties.

blog comments powered by Disqus
Scottrade