Commercial paper is a debt instrument issued by well-established companies to meet short-term financing needs. Commercial paper calls for the payment of money at a specified date, usually within two to 270 days. Issuers tend to issue commercial paper to help manage short-term cash flow at a low cost since commercial paper is usually sold at a discount. Investors consider moving their investment dollars into commercial paper when they are looking to park idle cash in a safe and liquid investment vehicle. Commercial paper tends to be a very low risk investment since it is issued by companies with high credit ratings and is backed by bank lines of credit. The low risk that commercial paper provides comes at a price – low yields. |
