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Real Yields on European Junk Bonds Go Negative For First Time

edited September 8 in Other Investing
“Investors in European junk bonds have begun accepting interest payments that are lower than eurozone inflation levels for the first time ever, in the latest sign that central banks’ crisis-era debt purchases have shifted the balance between risk and reward. The yield on ICE BofA index of European high-yield bonds was pushed down to 2.34 per cent this week, marking the first time buyers of so-called high-yield European currency bonds have accepted payments below consumer price inflation in the eurozone …

Analysts said investors’ willingness to extend credit to the riskiest borrowers while losing money in real terms reflected the scarcity of other opportunities to earn returns in debt markets. At the same time, Europe’s strong recovery from the pandemic following a bumper earnings season has reduced the risk that junk bond issuers will default.”

(If your bond or multi-asset fund holds global debt you may own some of these.)

The Financial Times


  • How long before credit card interest rates go negative !
  • edited September 8
    Thanks for comment. What happens. I read something (in the paper edition) and it strikes me as possibly relevant with a deeper significance. So, I Google some key words, locate the article and link it without without much explanation.

    What I was thinking when I linked the article (probably obvious) is that the same issue - ultra low interest rates - that keeps investors buying equities at high valuations also impels them to buy riskier junk bonds yielding less than inflation. This article confirms that junk across the USA is also yielding less than inflation.

    So TINA (There is no alternative) applies not just to equities, but to junk bonds - and probably many other assets. One wonders when and how this will all end. Other reading suggests that junk munis have been super hot all year and yield remarkably little - likely not adequate compensation for risk undertaken.

    @carew88 - Surely you jest. I do recall several years ago when some credit unions had new car loan rates at 3% and lower. But that seemed to change. Paid cash for the car in 2018 rather than finance at what the CU was asking.
  • +1 hank yes, complete and utter snark !
  • May be snark, but humorous, in a "Dilbert" sort of way.
  • Yes-in a silly,humorous way. I used to like "Dilbert" until I found out he was a huge supporter of "Orangeman!"
  • edited September 9
    "Credit spreads in Europe haven’t been this tight this consistently since, again, the summer of 2007.
    In the credit market, unlike stocks, stability like this should ring alarm bells.
    Investment-grade issuers, and not just low-grade junk issuers, have rushed to issue more debt this week, locking in generously cheap funding while they have the chance.
    That means that that much more debt will have to be rolled over in future, creating that much more pressure on the Federal Reserve and other central banks to keep the liquidity flowing.
    If potential lenders aren’t able to refinance that debt in future, then we have the seeds of a Minsky Moment, the point at which investors recognize that debt is unsustainable and lose confidence."

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