AFTER YEARS OF excess liquidity flooding the European secondary bond markets, the US sub-prime disaster has coursed through trading channels. Over the past three months, credit fundamentals have broken down, and liquidity has contracted severely in the cash bond and loan markets. This time last year, investors were buying up debt instruments as fast as originators could devise ever more diverse structures for them, as tight spreads and the search for yield drove much of the buy side to look for more value-added areas to invest in. Now many of these complex instruments have gone from semi-liquid to practically solid and are responsible for significant mark-to-market losses. The crunch has already claimed its share of banking stars and has not yet reached the end of its trail of destruction. The primary debt markets have stuttered and stalled as volatility has increased dramatically.
But secondary trading continues to flow in some...
