{"id":27071,"date":"2017-10-20T19:06:27","date_gmt":"2017-10-21T00:06:27","guid":{"rendered":"http:\/\/olduvai.ca\/?p=27071"},"modified":"2017-10-20T19:06:27","modified_gmt":"2017-10-21T00:06:27","slug":"this-is-what-it-looks-like-when-credit-markets-go-nuts","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=27071","title":{"rendered":"This is What it Looks Like When Credit Markets Go Nuts"},"content":{"rendered":"<header>\n<h3 class=\"entry-title\"><a href=\"https:\/\/wolfstreet.com\/2017\/10\/19\/euro-junk-bond-yield-v-us-treasury-yield\/\">This is What it Looks Like When Credit Markets Go Nuts<span style=\"color: #333333; font-size: 16px;\"><\/span><\/a><\/h3>\n<\/header>\n<div class=\"entry-content\">\n<p><strong>Pricing of risk kicks bucket in record central-bank absurdity.<\/strong><\/p>\n<p>As the days pass, the perverse effects of central bank policies on the financial markets are getting more and more amazing. This includes the record-setting nuttiness now reigning in the European bond market, compared to the mere semi-nuttiness in the US bond market.<\/p>\n<p>The 10-year yield of US Treasury Securities closed at 2.34% yesterday and at 2.33% today. This is low by historical standards. It\u2019s barely above the rate of consumer price inflation as measured by CPI, which was 2.2% in September. This means that coupon payments barely make up for the loss of purchasing power. If inflation ticks up just a little, bondholders will be left in the hole. And a yield this low doesn\u2019t compensate bondholders for any other risks, including duration risk, which can be significant. In other words, this is a bad deal.<\/p>\n<p>But in this strange world, it looks practically sane, compared to the Draghi-engineered negative-yield absurdity that has overtaken the Eurozone, where the average yield of euro junk bonds \u2013 the riskiest bonds out there \u2013 dropped to 2.16%.<\/p>\n<p>This chart, based on the BofA Merrill Lynch Euro High Yield Index via the St. Louis Fed, shows how the average euro junk-bond yield (red line) has plunged so far this year, on the way to what? Zero? The 10-year US Treasury yield (black line) has started rising in past weeks and, in late September rose above the euro junk bond yield for the first time ever:<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-36236\" src=\"https:\/\/wolfstreet.com\/wp-content\/uploads\/2017\/10\/Euro-junk-bond-yield-v_Treasuries-2017-10-19.png\" alt=\"\" width=\"511\" height=\"413\" \/><\/p>\n<p>This average junk-bond yield is based on a basket of below-investment-grade corporate bonds denominated in euros. Among the issuers are European subsidiaries of junk-rated American companies. For them, it\u2019s nearly free money.<\/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>This is What it Looks Like When Credit Markets Go Nuts Pricing of risk kicks bucket in record central-bank absurdity. As the days pass, the perverse effects of central bank policies on the financial markets are getting more and more amazing. This includes the record-setting nuttiness now reigning in the European bond market, compared to [&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":[175,3995,1849,690,4254,4255],"class_list":["post-27071","post","type-post","status-publish","format-standard","hentry","category-economics","tag-credit","tag-credit-markets","tag-financial-markets","tag-risk","tag-wolf-richter","tag-wolfstreet"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/27071","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=27071"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/27071\/revisions"}],"predecessor-version":[{"id":27072,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/27071\/revisions\/27072"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=27071"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=27071"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=27071"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}