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News Link • Economy - Economics USA

Junk Bond Bubble in Pictures: Deflation Up Next

•, by Mish

The highest grade AAA corporate bonds yield 2.75%. BBB-rated corporate bonds, just one step above junk, 3.5%. BB-rated bonds yield just 4.28%.

The spread between Prime AAA bonds and lower-medium grade bonds (see chart below) is just 0.77 percentage points.

The spread between BBB lower-medium grade bonds and non-investment grade, speculative BB-rated bonds is just 0.69 percentage points.

The spread between BBB and BB-rated bonds hit six percentage points in the great recession.

Volume of Negative-Yielding Debt Rises Sharply

In the real world, yields would never be negative. In the Central Banks' bubble-blowing world, the Volume of Negative-Yielding Debt Rises Sharply.

From a low last October of just under USD 6 trillions the value of the Bloomberg Barclays Global Aggregate Negative-Yielding Debt Index has more than doubled, increasing in value by over USD 7 trillions over the last 8 months to establish an all-time record of USD 13.2 trillions earlier in late June.

The current situation is a manifestation of the inability of global financial markets to emerge from the era of ultra-low bond yields that central banks engineered in the wake of the global financial crisis.

Non-conventional policies pursued by central banks in recent years have lead neither to a rise in sluggish rates of economic growth nor to an end in the disinflationary trends within the global economy.

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