The Oil Drum

A new Round-Up has been posted at TOD:Canada.

A rash of bankruptcies at subprime lenders prompted a market wobble in February and March but traders swiftly decided the problem was contained. Equity markets across the world continued to rally, while the credit market remained phenomenally high in historical terms, thanks in large part to the growth of credit derivatives. These prompted optimism that it had become easier to spread risk and so it was justifiable that even the riskiest companies could obtain credit cheaply.

That mood of optimism is over. Fear now rules the credit markets, where the effective cost of ensuring against a default, in both Europe and the US, has increased by more than half in barely a month. A steady drip of bad news has prompted fears that the subprime debacle could trigger a credit crunch, raising the cost of financing worldwide as investors are forced to sell healthy investments to make good their losses....

....Rather than an orderly correction, they confront a situation where the market for riskier forms of credit seems to have come to a complete halt. US issuance of high-yield, or low-quality, debt stayed below $1bn for the third successive week, according to Thomson Financial. The last week of June brought $9.7bn of high-yield issuance; by last week that had fallen to $322m. This financing is crucial for private equity deals.

"The cancellation of high-yield deals and the inability of the large banks to syndicate their leveraged loans is causing the credit markets to shut down," says T. J. Marta, strategist at RBC Capital Markets. "Something has to give here: either equities have to give it up or credit is going to implode."