Sunday, December 9, 2007

BIS's quarterly survey of financial markets

The Bank for International Settlement's survey revealed the shutdown in the international debt market. The value of bonds issued by businesses halved between the second and third quarters of the year.

Borrowing in the international debt markets retreated sharply during the turmoil in financial markets in the third quarter of 2007. Net issuance of $396 billion in bonds and notes was less than half that of the previous quarter. Year-on-year growth was negative (–4%) for the first time in two years, and well below both the 18% growth the previous quarter and the 7% average since 2003. The $90 billion in new eurodenominated bonds and notes represented a year-on-year decline of 9% (compared to a 17% decrease the previous quarter), while the dollar and sterling segments sagged to 0% and 2%, respectively (from 17% and 14% the previous quarter). Perhaps reflecting the relative stability of Japanese money markets during the quarter, the issuance of yen-denominated bonds and notes appears to have been little affected by the turbulence.

The decline in euro-denominated borrowing reflected weak issuance in the euro area, particularly from French and German residents (Graph 1, left-hand panel). There was only $82 billion in new bonds and notes issued by euro area borrowers, following $392 billion the previous quarter. For
the first time since the 1980s, German net issuance was negative (–$20 billion), while the $10 billion in borrowing from residents of France was significantly below the $34 billion average over the last five years. For residents of both these countries, the decrease in issuance was due to a fall in financial sector borrowing, particularly from private banks.

Although the decline was not as marked, net issuanc
e in the United States, the United Kingdom and Australia also fell from the previous quarter. Borrowing from the United States was around $190 billion in the third quarter, which corresponded to a year-on-year growth rate of 4%, well below the previous quarter’s 22%. .....Examining gross issuance in the third quarter by credit quality class for international debt securities, the slowdown is most pronounced for non-investment grade bonds.

Here are some of the reasons why:
(source: markets hit by renewed credit woes)

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