The ABCP market's composition has shifted, with independent-sponsored programs growing to 42% of the total, up from 30% two years ago. This change is driven by dealers using these off-balance-sheet structures to finance collateral more efficiently, especially as equity financing costs rise, thereby gaining potential accounting advantages.
The recent surge in Asset-Backed Commercial Paper (ABCP) supply is directly linked to increased leverage in equity markets. As record-long futures positions and ETF usage drive up equity financing costs, dealers are increasingly turning to the ABCP market as an alternative funding channel for equity collateral.
Despite a broad investor base successfully absorbing record supply in the Asset-Backed Commercial Paper (ABCP) market, a new risk is emerging. Issuer concentration is becoming a notable constraint, suggesting the largest issuers may need to offer wider spreads to attract incremental demand, potentially limiting unfettered growth.