Bank Funding Crunch Deepens as Default Swaps Reach Records: Credit Markets

[marmar]

Bank Funding Crunch Deepens as Swap Rates Soar: Credit Markets
By Shannon D. Harrington and Abigail Moses


May 10 (Bloomberg) -- Europe’s government debt crisis is starting to infect the bank funding system, driving borrowing costs higher from Asia to the U.S. and threatening to slow the global economic recovery.

The interest rate that financial companies charge each other for three month loans in dollars is the highest since August, while traders are paying record amounts to hedge against losses in European bank bonds. Yields on all types of corporate bonds rose last week by the most relative to government debt since Lehman Brothers Holdings Inc.’s bankruptcy in September 2008, according to Bank of America Merrill Lynch indexes.

European Union finance ministers pledged to stop a sovereign debt crisis from shattering confidence in the euro as they held an emergency summit over the weekend to hammer out a lending mechanism for deficit-stricken nations. The sovereign debt crisis may end up costing governments more than $1 trillion, according to credit investment firm Aladdin Capital Holdings LLC in Stamford, Connecticut, with knock-on effects on banks and corporates.

“Whether the markets completely unravel depends on whether politicians can stabilize the peripheral government market,” said James Gledhill, who helps manage about 58 billion pounds ($85 billion) as head of fixed income at Henderson Global Investors Ltd. in London. “The tail risk is the stress on banks which stops them from lending to corporates and feeds through to become a real economy problem.” ...........(more)

The complete piece is at: http://www.bloomberg.com/apps/news?pid=20601087&sid=aP2k8sq2WiRU&pos=2

[bemildred]

1. So the global markets are brittle, fragile, with many small points of failure?

And globalization makes all this possible?

[dixiegrrrrl]

2. So they are going to do over there what we did over here

and throw more ( borrowed) money into the black hole?