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What does the pattern of bonuses, hitting fresh peaks on both sides of the Atlantic, tell us about the markets, asks Tony Jackson?

The main hotspots are M&A, credit and equity derivatives, commodities and private banking, which form an intricate and self-feeding group. The main dull spots are cash equities and plain debt issuance.

In M&A, there are two big differences with the last peak. In 2000, more than half the aggregate payment was in equity. This time, nearly four-fifths is in cash.

There is also a new force in the market: private equity. Private equity forms a nexus in today’s markets - it creates a huge supply of leveraged loans, which are then used to generate credit derivatives.

The unpopularity of the dowdier areas may seem paradoxical. Equity markets are on a bull run. If a torrent of debt is being issued for M&A, why are the issuers not more in demand?

The simple answer, he thinks, is that the markets are gripped by a passion for complexity. In equities, memories of the last bear market are still fresh and investors want to do something fancier than buy plain vanilla stocks. In debt, basic yields are still too low to be attractive so they must be souped up through complicated structures.

The main risk is that the structure could start to unravel.  A private equity collapse could do big damage to the industry’s reputation, denting the confidence of investors in M&A generally. Then the whole complex machine would start to slow down.

That need not be a disaster scenario - much would depend on how credit derivatives withstood their first systemic test. But in the words of Donald Rumsfeld, there are too many known unknowns out there for comfort.