The Federal Reserve surveys U.S. corporations with MTN programs. These companies provide data on a confidential basis on the amount of MTNs they issue; respondents report monthly, quarterly, or annually depending on how active they are in the market. At year-end, all MTN issuers are asked to provide data on the amount of their outstandings. The data on gross issuance began in January 1983, and the data on outstandings have been collected since year-end 1989. The Federal Reserve obtains information on new programs from announcements of SEC Rule 415 registrations and contacts with MTN agents.



Because the participation rate in the Federal Reserve survey is 100 percent, it provides an accurate measure of the volume of MTN financing by U.S. corporations in the U.S. public market. However, while the U.S. corporate sector is the largest segment of the MTN market, MTNs are issued in other markets and by non-U.S. corporations. For example, several U.S. corporations have issued MTNs in the Euro-market. Also, the survey does not include MTNs issued in the U.S. public market by government-sponsored agencies, such as the Federal National Mortgage Association, by supranational institutions, and by non-U.S. corporations. Furthermore, although the database includes MTNs issued by bank holding companies, it does not include deposit notes and bank notes offered by banks because these securities are exempt from SEC registration. Perhaps most important, the database does not include privately placed MTNs. The private placement market is particularly attractive to issuers who wish to gain access to U.S. investors without having to obtain SEC approval for a public offering. According to MTN agents, non-U.S. corporations are the largest borrowers in the market for privately placed MTNs. Because the financing costs are usually lower in the public market than in the less liquid private market, most U.S. corporations choose to issue public, SEC-registered MTNs.

Issuance Volume and Industry of the Issuers

Borrowers in the MTN market span a wide array of industry groups. In the financial sector, major borrowers include auto finance companies, bank holding companies, business and consumer credit institutions, and securities brokers. In the nonfinancial sector, participants in the MTN market include utilities, telephone companies, manufacturers, service firms, and wholesalers and retailers.

Maturities on MTNs reflect the financing needs of the borrowers. Financial firms tend to issue MTNs with maturities matched to the maturity of loans made to their customers. Consequently, in the financial sector, maturities are concentrated in a range of one to five years, with only a small proportion are longer than ten years. Nonfinancial firms, in contrast, often use MTNs to finance long-lived assets, such as plant and equipment. As a result, maturities on MTNs issued by nonfinancial corporations cover a wider range.

The Relative Size of the MTN market

The MTN market accounts for a significant share of borrowing by U.S. corporations. One measure of the size of the market is the ratio of outstanding MTNs to the amount of outstanding public debt (MTNs plus public corporate bonds).

An alternative measure of the size of the market is the volume of investment-grade MTN issuance as a percentage of total investment-grade debt issuance (MTNs plus underwritten straight bonds). This ratio of debt issuance may overestimate the size of the MTN market because MTNs typically have shorter maturities than corporate bonds.

MTNs represent an increasingly important source of credit to nonfinancial corporations, as companies have shifted funding from alternative credit markets. In general, nonfinancial corporations that borrow in the MTN market have access to other major credit markets: corporate bonds, commercial paper, bank loans, and privately placed bonds. The shift to long-term financing (MTNs and bonds) over this period is a typical, cyclical phenomenon that occurs in periods of slow economic growth and falling long-term interest rates. However, some of the growth of the MTN market reflects a secular decline in the role of banks as financial intermediaries.