September was an awful month for credit markets as Lehman Brothers filed for Chapter 11 protection, making it the biggest bankruptcy in history. Major events for financial companies dominated the headlines. Any one would have been regarded as significant but the fact that all came within a few weeks suggested the authorities were aggressively trying to avert financial disaster.Previous rescues created an expectation that no big institutions would be allowed to fail, so the Lehman bankruptcy prompted a major rethink - and a re-pricing of risk - pushing corporate bond prices lower.Lehman bondholders are likely to get little back while the sale of troubled Washington Mutual to JPMorgan was done in a way that leaves any payback for its bondholders in doubt. The US government rescue packages for Freddie Mac, Fannie Mae and AIG, Bank of America's purchase of Merrill Lynch and the move to make Goldman Sachs and Morgan Stanley bank holding companies, along with capital raisings, were all more positive for bondholders.Perhaps the most significant event was the announcement that the US would launch a $700 billion fund to alleviate the credit crisis, the root of the banks' problems. Called the Troubled Assets Relief Program (TARP), it will take over the banks' illiquid credit assets.Lloyds TSB wants to buy HBOS, but, disappointingly, no buyers emerged for Bradford & Bingley so the UK government nationalised it. At the month end, confidence was low, reflected in heavy price falls for corporate bonds, pushing yields to 10-year highs.
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