Global debt hit by credit crunch

The market is still reeling from the aftershocks of the credit crunch

Borrowing in international debt markets slumped by more than half between July and September amid the global credit crunch, a study has suggested.

Financial market turmoil saw the value of bonds and notes issued as security on loans fall to $396bn, said the Bank for International Settlements (BIS).

Emerging markets in Europe and Asia saw the greatest drop-off as lenders became cagey about releasing funds.

The period was dominated by US housing market deterioration, BIS said.

'Reduced appetite'

Companies, banks and countries all issue international bonds in order to finance their operations and cover any deficits.

But the "abnormal market conditions" meant that big companies were unable or unwilling to raise funds in international markets.

In the eurozone there was just $82bn of debt instruments issued, down from $392bn in the previous three months.

And in the US, the $190bn of borrowing was 4% up on the previous year, but much less than the 22% growth seen between April and June.

"The decline in emerging market issuance may have reflected a retreat in the risk appetite of the investment community more generally," the BIS said.

It added that investors expected the global credit squeeze to continue well into 2008.

Credit squeeze continues

The BIS added that the recovery seen after the first credit crisis in August had given way to further liquidity problems.

Credit markets had improved in October despite continuing concerns about the quality of assets and weak housing data, BIS said, but then had deteriorated again by November.

The spreads - the difference in interest rates between risky and less-risky investments - had also widened again, showing that investors were fleeing to safe havens.

The one area which showed substantial growth during the third quarter was derivatives trading, as companies and banks tried to hedge their losses as interest rates and currency rates changed sharply.

Derivative trades in currencies, interest rates and swaps rose 27% in the quarter.

The Bank for International Settlements is the organisation that represents the world's central banks, and tracks international debt, borrowing and bank lending worldwide.