Europe's corporate bond market is shrinking as redemptionsoutstrip issuance, banks borrow and lend less, and companiesstockpile cash rather than invest in their businesses.

Banks have sold about 335 billion euros ($427 billion) of bondsin the common currency and pounds this year, down from 443 billioneuros last year, 503 billion euros the year before and a record 671billion euros in 2009. Banks cut their lending to euro-areacompanies by 45 billion euros in the third quarter from a yearearlier, according to the European Central Bank.

“It's not clear whether the lack of bank lending is a reflectionof broken banks or more a problem of dire economic outlooks forcorporates,” said David Watts, a strategist at CreditSights Inc. inLondon. “Companies that are able to do so are tapping the bondmarkets. The rest either can't or don't want to borrow.”