Signs of credit market thaw begin to emerge

updated 8:24 p.m. ET Jan. 13, 2009

NEW YORK - Credit markets are beginning to thaw after months of a deep freeze.

In a promising turn that could bolster the economy, companies are selling bonds at a pace not seen since last spring. At the same time, companies are finding it easier to issue commercial paper, the short-term loans necessary for quick access to cash.

Global sales of new corporate debt jumped to $82 billion last week, the highest since $103 billion last May and nearly double the level seen right before the credit crisis intensified in September, according to data-tracker Dealogic.

The thawing means companies such as Cablevision Holdings Corp. and General Electric Co. can raise money more easily for everything from payrolls to paying down debt, an important shift that ultimately will benefit consumers.

(Msnbc.com is a joint venture of Microsoft and NBC Universal. The latter is a division of GE.)

If the trend continues, it would be the outcome that government officials have been seeking for months, as they pumped hundreds of billions of dollars into the financial system. More could be on the way.

Federal Reserve Chairman Ben Bernanke, in a speech Tuesday at the London School of Economics, indicated additional steps will be taken to stabilize the financial system beyond the $800 billion stimulus package being crafted by President-elect Barack Obama.

"History demonstrates conclusively that a modern economy cannot grow if its financial system is not operating effectively," Bernanke said.

It's a fact of life for companies the size of Exxon-Mobil to the corner deli: They struggle if they can't borrow money. That's just what happened in the aftermath of the financial meltdown, as banks stopped lending and investors turned away from corporate debt.

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A credit freeze hits the economy hard because it forces companies to lay off workers because they can't make payrolls and to cut planned expansions.

"There is a domino effect if companies can't borrow," said Len Blum, managing director at Westwood Capital. "The doughnut shop down the street from headquarters suffers because fewer people are coming in since there has been layoffs at the company."

To be sure, danger still looms in the credit markets. Bank lending remains at a trickle and it will likely stay that way so long as financial companies contend with massive losses tied to their mortgage-related assets and other bad debt.

Despite a taxpayer-funded bailout and moves by the Federal Reserve to loan more money to financial institutions, banks are still reluctant to lend.

That's due, in part, to the fact many are still struggling. Citigroup Inc., which lost more than $20 billion between October 2007 and October 2008, is expected to report next week another loss of $10 billion more for the three months of 2008, according to analysts. The government has already lent the embattled bank $45 billion and agreed to absorb the losses on a huge pool of mortgages and other distressed assets.

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