The credit trap

Tentative moves back to credit-linked structured notes were disrupted in March by rises in sovereign default premiums. Credit default swap prices even forced Landesbank Berlin to withdraw a credit-linked product from the German market. So is credit still too risky, even for sovereign exposure? Sophia Morrell reports

Credit is widely perceived as the root of the financial crisis, prompting a complete shift in attitudes during the past year. The burgeoning market in structured finance 18 months ago - when products such as constant proportion debt obligations were in the pipeline - has been stopped in its tracks, and the products are now anathema to banks wary of the public's attitude towards exotic debt packages. Pervasive uncertainty has taken its place.

Traditionally, investing in credit has meant putting