In Banking: A Very Short Introduction, Goddard and Wilson write:
[Commercial paper] usually carries a higher yield than corporate bonds.
But aren't corporate bonds longer term than commercial paper and so all else equal should pay higher yields/interest rates?
The wording seems incorrect, the only thing that appears to make sense is “higher spread,” since as you note, bonds are issued with longer maturities. The yield differential would depend on the slope of the curve.
Whether “higher spread” is accurate is yet another question. I did not spend much time looking at corporate bond data, but spreads normally increase as maturity lengthens for firms that are strong credits. A bond that is secured against specific collateral might trade tighter, but most “corporate bonds” are unsecured (as opposed to asset-backed securities). However, commercial paper may have wider spreads for banks, as the bonds may be senior versus commercial paper. (I’m guessing about that.)
Is this generally speaking true? My impression is that it is not. The following figure graphs the 10-Year High Quality Market (HQM) Corporate Bond Spot Rate (HQMCB10YR) against the 3-Month AA Nonfinancial Commercial Paper Rate (CPN3M).
In general, long maturity bonds yield more than short maturity bonds. This makes CP more likely to be lower yielding than longer dated bonds. In addition, participants in the commercial paper market tend to have superior credit quality, while longer dated bonds have a mixture of high quality and lower quality (fallen angel) borrower. So comparing average rates between these groups would be doubly likely to show that bonds had higher yields than CP. I would think the only time that the opposite would be true would be when the yield curve was steeply inverted. In this case, when long term rates are below longer term rates, it would be more likely that bonds could have a lower yield than CP.
