Coming Week: Bond Binge

The credit markets are back open for business, which has helped the stock market wind its way to within a few percentage points of July's all-time highs.

This week, traders will be keeping a keen eye on how new corporate bond sales are received. Getting deals done makes investors more willing to engage in the risk-taking that builds market confidence and fosters more dealmaking.

Last week, underwriting banks succeeded in pricing some of the loans financing the leveraged buyout of First Data and some high-yield bonds to finance the buyout of medical device maker Biomet. That deal closed Tuesday. Investors gobbled up an issue of bonds from investment bank Bear Stearns(BSC), quieting talk that the investment bank was in dire need of new capital.

Other measures of liquidity in the credit markets have also improved. The market-driven overnight lending rate known as Libor has continued to fall since the Federal Reserve slashed interest rates, and short-term borrowing rates have fallen in concert. This means banks and companies are more comfortable lending to each other -- more confidence.

Earlier this summer, these markets shut down and liquidity dried up as the subprime mortgage market meltdown rippled through the global markets. An entire investor class for junk bonds and loans called collateralized debt obligations virtually disappeared. As buyout announcements grew scarce, credit spreads rose, and sales of loans and bonds to finance acquisitions stopped. The banks that had committed financing to the deals were left holding the bag. They promised the $300 billion pipeline would take shape after Labor Day.