What do you get when you combine NIRP, a lunatic central bank bid for corporate credit, and a ridiculously resilient rally in HY?
Well, you get yield-hunting, spread-compressing madness which has led directly to the rather surreal scenario depicted in the right pane below:
Here’s BofAML:
Despite long-term Bund yields moving higher in the past months, it seems that the front-end is still close to record levels. With front-end bunds at the lows, the problem of negative yielding assets has not really disappeared (chart 5). Notably more than 42% of the Euro-denominated fixed income market is still yielding below zero, hovering around that level since the start of the year.
Put that on top of (i) the short-duration the HY market exhibits (due to the high concentration of callable bonds) and (ii) the recent spread compression and one could see the HE00 index offering the lowest yield ever; below 2.8% (chart 6).
Or, more simply:
https://twitter.com/LadyFOHF/status/867318338703298560
And more simply still:
