The $1 Trillion Commercial-Paper Market Is Fading Into Obscurity

It’s a $1 trillion market and a vital part of the global financial system’s plumbing. Yet these days, both borrowers and investors are increasingly steering clear of short-term company IOUs known as commercial paper, and industry watchers say it’s just the beginning.

A tenuous economic recovery and narrow yield gap between near- and medium-term debt are spurring banks and corporations to issue securities with longer maturities. At the same time, plunging spreads relative to Treasury bills and lingering liquidity concerns -- even after the Federal Reserve intervened in the market -- are squelching demand, fueling a mass exodus from...