This morning brings fresh worries over the health of global credit markets.In Europe, corporate bond spreads widened and share prices were under pressure as overnight deposit rates for euros rose to a six-year high, according to Bloomberg, "prompting calls for the European Central Bank to supply more cash."
A Wall Street Journal (subscription required) report, "Why Libor Defies Gravity," noted that the London interbank offered rate, "an important benchmark for everything from adjustable-rate mortgages in the U.S. to giant floating-rate bank loans taken out by global corporations," has moved higher in recent weeks, despite efforts by central bankers to keep a lid on short-term interest rates.
Nervousness has also been seen in the U.S. commercial paper (CP) market, a key source of funding for banks, corporations, and other borrowers. The Journal reported last Thursday that the total amount outstanding has dropped 11% since August 8, an unusual occurrence.
Interestingly, one class of issuer has been especially hard hit: foreign financial firms. While this group has garnered a sizable share of the overall CP market during the past few years, they have recently been forced to pare back offerings as buyers balked. That may indicate that investors believe foreign-based operators will be significantly at risk as events unfold
Given its origins, the fact that a credit crisis stemming from a bursting U.S. housing bubble and a meltdown in the American subprime finance sector is having such a pronounced effect on companies, sectors, and markets around the globe remains a troubling sign.
Michael Panzner is a 25-year veteran of the global stock, bond, and currency markets and the author of Financial Armageddon: Protecting Your Future from Four Impending Catastrophes and The New Laws of the Stock Market Jungle.
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