Asset managers are warning that liquidity in the European corporate bond market is drying up as a result of regulatory and commercial pressures on banks, mimicking some of the conditions that presaged the credit crunch.

Tanguy Le Saout, head of European fixed income at Pioneer Investments, said liquidity in the secondary market for European corporate bonds "is going down and down and down". Le Saout said he expected European corporate debt prices to rise next year. However, reduced liquidity is increasing the risk that a market downturn could turn into a rout. He said big outflows from funds would be a problem. He added: "Some may have to close funds to stop outflows, just like BNP Paribas had to in August 2007. The risk of that happening is going up."