Two months ago, the chances of a credit crunch were too small to measure,” says the head of syndicated loans at a big American bank. Now, they are better than 50%, says a report in the latest edition of The Economist.

The signs are ominous: low new-issue volumes for corporate securities, both debt and equity; falling amounts of loans extended by commercial banks; and a higher price for borrowing. A fairly benign explanation of the low volumes is falling demand for money among companies, after a surge of investment in the 1990s. Few companies, after all, want to build factories these days, or invest so much as they once did in information technology. Overcapacity remains. Meanwhile, the suspicion that consumers must soon cut back on their heavy spending justifies inventories kept as lean as possible, along with their financing.

Yet evidence continues to grow that the supply of capital is being shut off, too. It is a process that started with the riskiest securities—that is, junk bonds and new issues of shares—but is now spreading to the safer parts of the credit markets, including those for bank loans and for high-grade corporate bonds.

In recent months, the decline of the junk-bond market has accelerated. Even if you do not count the large quantity of bonds issued by telecoms companies that are now bust or nearly so, the average junk issue trades at a yield of some ten percentage points above Treasury bonds. That is a larger premium even than during the financial crisis caused by the collapse of Long-Term Capital Management in the autumn of 1998.

A mere $600m of junk debt is now being issued each month, one-eighth the amount of a year ago. The number will now bounce up a bit, but only briefly. Some $1 billion of junk bonds are being offered to help finance the $7 billion leveraged buyout of QwestDex, the yellow-page business owned by Qwest, a telecoms company desperate to raise cash. Another $900m is to be issued to finance the acquisition of a similar business owned by Sprint, another struggling telecoms company. Such directories are a dull, predictable business, and the bonds are rated junk only because of the high levels of leverage used for the acquisitions. After these big financings, little is in the pipeline.

Many companies would love to cut their heavy debt by issuing shares. Yet public offerings of shares ground to a halt in the summer of 2000, and the market has yet to recover. An alternative way for companies with less than stellar ratings to get through tricky periods used to be to set up special entities that would buy receivables from the parent company, using money that was raised cheaply from the capital markets. As bills were paid, so the money was repaid. Yet after Enron’s abuse of this structure, special-purpose vehicles have fallen into disrepute.