Investments, tenth edition

BID

MATURITY

DAYS TO

MAT

ASKED

ASK

YLD

CHG

Treasury Bills

 Figure 2.1 

Treasury bill yields 

  Source: Compiled from data obtained from  The Wall 

Street Journal Online,  July 17, 2012. 

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6/18/13   7:41 PM

6/18/13   7:41 PM

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  C H A P T E R  

2

  Asset Classes and Financial Instruments 

31

 While most commercial paper is issued by nonfinancial firms, in recent years there was 

a sharp increase in  asset-backed commercial paper  issued by financial firms such as banks. 

This was short-term commercial paper typically used to raise funds for the institution to 

invest in other assets, most notoriously, subprime mortgages. These assets were in turn 

used as collateral for the commercial paper—hence the label “asset backed.” This practice 

led to many difficulties starting in the summer of 2007 when the subprime mortgagors 

began defaulting. The banks found themselves unable to issue new commercial paper to 

refinance their positions as the old paper matured.