{"id":26405,"date":"2017-10-02T13:44:44","date_gmt":"2017-10-02T18:44:44","guid":{"rendered":"http:\/\/olduvai.ca\/?p=26405"},"modified":"2017-10-02T13:44:44","modified_gmt":"2017-10-02T18:44:44","slug":"the-pricing-of-risk-is-kaput","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=26405","title":{"rendered":"The Pricing of Risk is Kaput"},"content":{"rendered":"<header>\n<h3 class=\"entry-title\"><a href=\"https:\/\/wolfstreet.com\/2017\/10\/02\/chart-u-s-treasury-yield-v-euro-junk-bond-yield\/\">The Pricing of Risk is Kaput<\/a><span style=\"color: #333333; font-size: 16px;\">\u00a0<\/span><\/h3>\n<\/header>\n<div class=\"entry-content\">\n<p><strong>US Treasury Yield v. Euro \u201cJunk Bond<\/strong><strong>\u201d\u00a0<\/strong><strong>Yield. A new record in central-bank engineered absurdity.\u00a0<\/strong><\/p>\n<p>US Treasury Securities with longer maturities fell this morning, with the 10-year Treasury yield rising above 2.37% early on and currently trading at 2.34%. This is still low by historical standards, and it\u2019s still in denial of the Fed\u2019s monetary tightening: Four rate hikes since it started this cycle, and the QE unwind has commenced as of today. But it cannot hold a candle to the Draghi-engineered negative-yield absurdity still unfolding in the Eurozone.<\/p>\n<p>The average yield of junk bonds denominated in euros hit a new all-time record low at the close on Friday of 2.30%.<\/p>\n<p>Let that sink in a moment. These euro corporate bonds are rated below investment grade. Companies, unlike the US, cannot print their own money to prevent default. There is little liquidity in the junk bond market, and selling these bonds when push comes to shove can be hard or impossible. The reason they\u2019re called \u201cjunk\u201d is because of their high risk of default.<\/p>\n<p>And yet, prices of these junk bonds have been inflated by the ECB\u2019s policies to such a degree that their yield, which falls as prices rise, is now lower than that of 10-year US Treasury securities that are considered the most liquid securities with the least credit risk out there.<\/p>\n<p>The average yield of the euro junk bonds is based on a basket of below-investment-grade corporate bonds denominated in euros. Issuers include junk-rated American companies with European subsidiaries \u2013 in which case these bonds are called \u201creverse Yankees.\u201d<\/p>\n<p>They\u00a0include the riskiest bonds. Plenty of them will default. Losses will be painful. Investors know this. It\u2019s not a secret. But they don\u2019t mind. They\u2019re institutional investors plowing other people\u2019s money into these bonds, and they don\u2019t need to mind, but they <em>have to<\/em> buy these bonds because that\u2019s their job.<\/p>\n<p>&#8230;click on the above link to read the rest of the article&#8230;<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>The Pricing of Risk is Kaput\u00a0 US Treasury Yield v. Euro \u201cJunk Bond\u201d\u00a0Yield. A new record in central-bank engineered absurdity.\u00a0 US Treasury Securities with longer maturities fell this morning, with the 10-year Treasury yield rising above 2.37% early on and currently trading at 2.34%. This is still low by historical standards, and it\u2019s still in [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[16264,281,284,690,2202,4254,4255],"class_list":["post-26405","post","type-post","status-publish","format-standard","hentry","category-economics","tag-euro-junk-bonds","tag-europe","tag-european-union","tag-risk","tag-us-treasury","tag-wolf-richter","tag-wolfstreet"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/26405","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=26405"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/26405\/revisions"}],"predecessor-version":[{"id":26406,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/26405\/revisions\/26406"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=26405"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=26405"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=26405"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}