Deep uncertainty over sovereign debt exposures and new regulation has locked many banks out of the senior unsecured funding markets, leading to a frantic search for solutions.

Junk bonds have suffered badly since the start of June, with investors being quick to sell off what is one of the riskiest fixed-income asset classes. But bankers point to the market’s underlying strengths and insist it will only get bigger in the long term. 

In the third quarter of 2011, global debt capital market volume sank to its lowest level since 2008 and the height of the financial crisis. Any hope of a recovery by the end of the year rests with policymakers. Geraldine Lambe reports.

Confidence in the sovereign linker market has been shaken following the credit downgrade of Greece. Demand has soared on AAA rated bonds, but with demand vastly outweighing supply in this sector, investors are turning to the corporate market and direct infrastructure for protection against inflation. 

India's vast infrastructure needs should make a larger bond market in the country indispensable. However, there are many regulatory obstacles to overcome.