NEW YORK (CNN/Money) - With the economy on the edge, the funk in the corporate bond market couldn't come at a worse time.

Worries about companies' ability to pay off their debts have sent their bond prices spiraling lower. Already, the corporate bond market looks worse than it did during 1998's Russian debt crisis and in the immediate aftermath of Sept. 11. Traders, who had thought they'd seen the worst of it in the summer's deep selloff, have given up on guessing when it will all end.

"The market's deteriorated far worse than I expected," said Mary Ann Hurley, a bond trader at D.A. Davidson. "Everything is reacting much more violently than you would have thought -- which probably means there's more trouble to come."

Recent sessions have seen the bonds of name-brand companies trade at levels usually reserved for speculative issues -- "junk," in the bond market's nomenclature. Ford, General Motors, Household International and Sears have all been slammed.

"You can see the distress in the market," said CreditSights analyst Louise Purtle. "It's in as much pain as it ever has been."

Spreads, the difference between corporate bond yields and risk-free Treasury yields, have got dangerously wide. In some cases, buyers don't even exist -- bonds get put up for sale at lower and lower prices but still don't get hit by a bid.

"People are sending out offers just to see if there are any buyers and there just don't seem to be," said one bond portfolio manager. "Markets are supposed to tell you what things are worth, but there's not a lot of that going on."

If the corporate bond market doesn't start getting better soon, the economy's chances at recovery could be in danger. Companies typically head to the bond market to finance long-term projects and many are in the habit of rolling their debt. As one bond matures, they help pay it off by issuing a new one.

But for some companies the yields the market is demanding are more than they can afford. Some, like Ford, would probably have a hard time bringing an offering to market. Nor is equity issuance a viable alternative, with the stock market in the gutter. They may be forced into taking other actions.

"They're going to have to cut into their expenditures," said Northern Trust chief U.S. economist Paul Kasriel, "either on labor or capital equipment. That's the bind we're in now."

Kasriel worries that, with capital spending budgets already cut to the bone, a new round of layoffs could come. That, in turn, could put a big enough crimp in consumer spending to send the economy back into recession -- the dreaded double-dip.

What's worrisome is that these kinds of fears can be self-reinforcing. When companies' bond yields get forced higher, it can bring about the funding crisis that investors worry about.

"If this thing unwinds in an ugly way -- which is more likely today than it was last week -- it could force companies to layoff whole streams of workers," said the bond portfolio manager. "That's what would cause the double dip."