eFinancialCareers

If the debt and equity capital markets are the factory floor for financial products, they could do with a lot more orders to get the production lines going this year.

Debt capital markets have been particularly badly affected in the last quarter, with government bailouts and bank failures meaning the market ground to a halt. The first nine months of this year saw a 36% decrease in the number of new debt issuances compared to the same period last year, and Q3 slumped by 57% on the previous quarter. This is the slowest period since 2000.

ECM hasn't fared much better, with market volumes slipping to $388bn for the first nine months of 2008 – the lowest since 2005. In fact, the only reason it has managed to do that well is because of the financial institutions themselves scrambling to raise new capital on the markets.

Financial firms raised $35.1bn on the equity capital markets during the third quarter of this year, accounting for 34% of total issuance globally. The biggest was JPMorgan's $10bn follow-on offering in the last week of September.

Initial public offerings (IPOs) – the first time firms offer shares to market – have shrunk considerably. Market volatility over the past three months has been particularly jarring for Europe, which has seen the lowest level of new share issuance since 1993. Deals over $100m have simply died on the Continent, and the last time an IPO raised more than this amount was back in July, when Spanish bank Caja de Ahorros de Mediterráneo raised €292m.

The number of IPOs to the end of September 2008 was down 57.5% on last year, according to Thomson Reuters. Australia saw the biggest slump (-76.5%), followed by Latin America (-69.7%), Europe (-66%) and Japan (-61.6%). The number of IPOs in the US fell by 22.2%.

Financial institutions have also been dominating the debt market, making up 66% of overall issuance in the first nine months of 2008, but this was still down from 79% at the same time last year.

The debt market landscape has changed considerably over the last 12 months. At the end of the third quarter of 2007, the DCM darlings were the securitisation deals – repackaged debt, like mortgage-backed securities and asset-backed securities – which made up 40% of the market, according to Thomson Reuters.

They now make up just 13% of the debt market, with corporate bonds comprising 52% of new issuance. Government bonds, however, were a hive of activity, surging from 17% of all new issues in the first nine months of 2007 to 35% during the same period this year.

During the week beginning 19 September – namely, when Lehman died and everyone else nearly followed – not a single investment grade bond was sold in the US and only eight were issued worldwide. The last time this happened was in 1989.

Click here for an explanation of the capital markets sector.