It’s not a snap or even a pop – but there’s definitely a crackle. Rumblings emerging from key credit markets bare a frightening resemblance to the early days of the 2008 credit crunch.
Take commercial paper, a widely used instrument for short-term funding in the corporate world. Financial sector issuance of commercial paper fell steadily in the second half of last year, from around $556.5 billion in July to $434.4 brillion in December. The final month of the year saw the downward trend spilling over into other industries.
Paul Ashworth at Capital Economics:
The contraction in commercial paper issued by the financial sector is now being compounded by a dramatic drop off in commercial paper loans to the non-financial sector.
Despite the European Central Bank’s renewed effort to keep bank liquidity ample, money markets have shown some signs of strain. The London Interbank Offer Rate or LIBOR, used for loans between banks, more than doubled in the last six months of the year to its current 0.55 percent as worries mounted about the health of European institutions.
Anthony Crescenzi, portfolio manager at PIMCO:
Liquidity risks by no means have been eliminated because liquidity provisions are no substitute for private capital nor the transference of risk to either the private-sector or the central bank.



