The visual representation of current lenders risk tolerance (click):

Here you see the corporate highest and lowest investment grade, 30Y mortgage and 10Y treasury. Add here a separate chart of high yield bonds:

The top traded bonds from this index are from such companies as GMAC, GM, Ford, Freescale semiconductor, E-Trade, China 3C group, etc. The price to get a loan is about 3% above what it was same time last year. This rate implies the expected default rate of over 9%, the default rate for January is 1.09%.

I would say the debt market has no illusion about the prospects of this economy. Does the stock market discount the expectation that subprime corporations will start defaulting at the rate 9% per year?

Maybe the corporations think that this is a temporary phenomena and it’s better o hold on a bit and issue bonds later? Not at all, they are trying to lock into rates:

Corporate treasurers are increasing sales of long-term investment-grade bonds for the first time in a decade, a sign they’re betting U.S. borrowing costs will rise as the Federal Reserve slows the pace of interest-rate cuts.

What about the volume?

First-quarter investment-grade sales fell to $210 billion from a record $281 billion a year earlier. New issuance of speculative- grade, or junk, bonds plunged to $10.4 billion from $42 billion.

This is the real, main street credit crunch, which has nothing to do with subprime mortgages