Just yesterday, we reported that in a world drowning with liquidity and where over $13 trillion in sovereign debt is now trading with a negative yield, Italy scrambled – as it should – to sell €3 billion in 50 year bonds, at a time when both Spain and France also auctioned debt at record-low rates. This is the same world where investors in 100 year bonds from Mexico Argentina, and Brazil, which were crushed last year, are now holding on to one of the best performing asset classes: to wit, Mexico’s 100 year bonds have outpaced returns on virtually all other soveriegn notes, and have made over 20% returns YTD as the scramble for duration hit record proportions.
Incidentally, none of this is because the underlying credit are financially stable or even, in some cases, viable and solvent. The only reason investors are rushing for this ultra-long maturity debt is in hopes that some other greater fool will buy it at a higher price, until eventually a price-indiscriminate central bank buys it at literally any price (after all, an entity that prints money is not that concerned about its cost basis).
But even more insane than what is going on in the sovereign bond world, are the latest developments in the “high”-yield bond market, where once upon a time yields were 7%, 8%, or even in the double digit area.
No more – as Bloomberg notes, the number of euro-denominated junk bonds trading with a negative yield, a status until recently associated with ultra-safe sovereign borrowers, is now a mindblowing 14; just 6 months ago, at the start of the year there were none.
The list of subzero
high negative yielding bonds is below, courtesy of Bloomberg:
- Ardagh Packaging Finance plc /Ardagh Holdings USA Inc.
- Altice Luxembourg SA
- Altice France SA
- Axalta Coating Systems LLC
- Constellium NV
- Arena Luxembourg Finance Sarl
- EC Finance Plc
- Nexi Capital SpA
- Nokia Corp.
- LSF10 Wolverine Investments SCA
- Smurfit Kappa Acquisitions ULC
- OI European Group BV
- Becton Dickinson Euro Finance Sarl
- WMG Acquisition Corp.
Once again we urge readers to consider the absurdity of the situation created by the ECB – a “high” yield bond on which an investor is guaranteed to lose money due to its yield below zero!
What’s certain is that the number of “negative” junk bonds issuers will only increase: On Monday, the ECB said it’s ready to add more stimulus to the euro zone, indicating that an end to Albert Edwards’ ‘ice age’ of ultra-low borrowing costs is far from over, in fact it’s only just starting, and by the time it’s over, central banks will own, well, everything… paid for with money created out of thin air.
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