Bond Market's Woes Spilling Over to Stocks

With the S&P 500 falling through 1000 and the Nasdaq plunging below 1500 for a spell Wednesday, it's no surprise that most investors' eyes are on stocks. But when trying to comprehend the malaise following the terrorist strikes of Sept. 11, don't ignore the extreme stress in the corporate bond market, the chief source of funds for America's largest companies.

The current credit market debacle poses a severe challenge to the nation's economy and its central bank, the Federal Reserve, which is doling out billions of dollars of cheap funds in an effort to keep markets and investors afloat.

According to bond investors, the credit market is experiencing its worst crisis since 1998, when the near-collapse of the gargantuan hedge fund Long Term Capital Management caused widespread market paralysis and threatened to bring down several investment banks. ...