Do institutional changes affect business cycles?

This article describes the changes in the international primary markets for debt in the period during which the 2007-2009 financial crisis broke out, gained momentum and spread, placing it in a longer time frame. These markets are very important for financing the public and private sectors throughout the world and have been severely affected by the crisis. International debt markets include many segments, the largest being the bond, syndicated loan and structured finance markets. Chart 1 shows that debt market issuance expanded strongly between 2000 and 2008, doubling in volume. Subsequently, they recorded a notable contraction, particularly in the higher risk segments which practically disappeared. Particular attention is paid to the analysis of and developments in the international structured finance markets, since they have played a crucial role in the deepest financial crisis since the Great Depression of the 1930s, although space is also devoted to issuance on the international bond and syndicated loan markets. The structured finance markets include asset-backed securities, credit derivatives and resecuritisations. Among these products, mortgage securitisations, collateralised debt obligations (CDOs) and asset-backed commercial paper (ABCP) grew particularly strongly in the years leading up to the crisis. It was in these instruments where the problems brought by the crisis were incubated and took shape. It is no surprise that their activity has diminished so drastically in recent years. Subsequently, a moderate recovery has been seen in some segments with a relatively high risk level, such as leveraged loan markets, high-yield bonds and, in some places, securitisation markets. The next section briefly describes how the crisis developed and spread on debt markets. Then subsequent sections analyse each of the main markets, beginning with the structured finance market, given its importance in recent years. The last section presents the conclusions, which include most notably the drastic shift in the make-up of debt markets towards bonds, particularly government bonds, to the detriment of structured finance markets.