Asset Backed Commercial Paper (ABCP) continues to implode.

The rapid contraction in ABCP might be part of the reason corporations in general are doing a mad dash for cash and financial firms specifically are hoarding all the liquidity the Fed keeps pumping in.

ABCP looks set to have started ‘another leg down’.

The default of Lehman Brothers (LEH) has hit the ABCP market hard and made a couple of money mark funds ‘break the buck’.

What Happened?

On Monday, September 15, Lehman Brothers Holdings Inc. filed for bankruptcy.

On Tuesday, September 16, Reserve Primary Fund, the oldest money fund, broke the buck when its share fell to 97 cents after writing off debt issued by Lehman Brothers.

On the same day, BNY Institutional Cash Reserves, a fund run by BNY Mellon, also broke the buck – its NAV fell to 99.1.cents – also due to Lehman holdings.

The resulting investor anxiety caused a run on the bank for money funds, as investors redeemed their holdings and funds were forced to liquidate assets or impose limits on redemptions: through Wednesday, institutional funds saw net outflows of $173 billion, to $2.17 trillion, a withdrawal of over 7%.