The world’s largest bond fund has reduced its holdings of commercial paper to zero as of late last month. Bill Gross, the manager of the Pimco Total Return Fund had eliminated its holdings of commercial paper by the end of August.

Concerned about the impact of mortgage defaults, investors have fled commercial paper leading to demands of higher spreads over “risk-free” interest rates. Bill Gross went so far as to say last month that the market for commercial paper “is basically history”, quite a telling statement.

While the market for asset-backed securities will undoubtedly survive, we will likely see overhauls in rating standards and the criteria used to assign ratings. In the meantime, the rate spreads will continue to have an impact on those seeking commercial loans in the former of higher interest rates and more stringent requirements.

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