Global credit markets are jittery. Like motorists driving past a crash, bond investors are taking a ghoulish interest in the wreckage of two Bear Stearns hedge funds hit by US subprime housing loans, and refusing to buy into the risky new deals on offer from investment banks. Without a more substantial external shock, however, this is unlikely to turn into a systemic meltdown in the credit markets.

The Bear Stearns funds in question were leveraged vehicles that bought derivatives backed by subprime mortgages. When the price of the derivatives fell, lenders to the funds asked for their money back, which meant the funds had to sell some of these structured mortgage-backed securities. That has proved to be very hard to do.