A note on inventories and commercial paper yields

Winters [Winters, D. B. (October 2002) Commercial paper: A colossal market. The Federal Reserve Bank of St. Louis-National Economic Trends, Cover Page], shows that the amount of non-financial commercial paper outstanding is positively correlated to the amount of total business inventory. In this paper, we extend his work by showing that total business inventory has a significant impact on the non-financial commercial paper yields. We use regression analysis for studying the relationship between inventories and their impact on the spread between commercial paper and Treasury bills. Our results have implications for money market arbitrage, monetary policy, working capital management for corporations and stock valuation.