Negative-Yielding Junk Bonds Have Arrived in Europe



Posted by Ed 14 days ago
NIRP is systematically rotting out basic brain functionality.
Amid rampant market expectations of another and even bigger and grander round of QE by the ECB, which would also be buying corporate bonds and old bicycles, the total amount of bonds with negative yields has risen to nearly $13 trillion, according to Bank of America Merrill Lynch.
The perversion of negative interest rates imposed by central banks such as the ECB, the Bank of Japan, the Swiss National Bank and a slew of others, and the even bigger perversion of negative-yielding corporate debt apparently does a job on investors’ minds.
In a negative-yield environment, you can no longer buy bonds to hold them to maturity because you’d be guaranteed a loss. You’d have to buy them solely on the hopes of even more deeply negative yields in the near future that would allow you to slough off these critters to the next guy before they eat you up.
And this type of thinking has now completely wiped out whatever was left of investors’ capacity to act rationally. Once you start getting into central-bank mandated negative yields, rationality no longer applies because negative-yielding debt is irrational by definition: Why would you pay someone to borrow money from you?
And this type of intellectual short-circuit has now spread to euro-denominated junk bonds. These are risky bonds that are too risky to be considered “investment grate.” They were issued by over-leveraged companies with iffy or negative cashflows and a considerable probability of default, especially during a downturn.

And yes, you guessed it: there are now 14 junk-rated companies with euro-denominated bonds that have negative yields, according to Bloomberg:

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