An Insane Bond Market In 4 Charts: "Italian Junk Bonds Yield Less Than US Treasurys"

Tyler Durden's picture

In our "WTF Chart of the day" from last Friday, we showed something stunning: European junk bonds yields were the same, and in some cases lower, than comparable-maturity 10Y US Treasurys.

In other words, the distortion unleashed by Mario Draghi's CSPP, or corporate bond buying program unveiled last March, has made European junk bonds "safer" than US government-issued paper.

These observations prompted BofA's Barnaby Martin to ask overnight "Is Euro High-Yield the new US Treasury market?."

Picking up where we left off, Martin writes that "inflow surges mean bubbles…and bubbles mean tight spreads. Perhaps no better example of this is the rapid price appreciation in Euro high-yield bond prices lately. In less than a month, Euro HY yields have declined (another) 55bp, reaching an all-time low of just 2.3%."

Next, Martin redoes the chart up top, and repeats that "European HY yields have almost declined to the yield on BofAML’s US Treasury index" adding that while "there are indeed duration differences between the two markets, it doesn’t detract from the eye-watering levels that European high-yield has now reached."

The results become even more eyewatering if one drills down on the "higher rated" European junk bonds, those in the BB bucket: here the relative value is "even more eye-watering" as over 60% of BBs rated HY bonds yield less than similar-maturity USTs and, "ironically, €23bn of Italian BBs now yield less than Treasuries."

As Martin adds here, "note that this is not just because some BBs are CSPP-eligible. There are plenty of non CSPP-eligible Euro-denominated BBs that yield less than US Treasuries."

The next chart shows that the plunge in bonds yielding more than matched-maturity Treasurys started roughly around the time Draghi unleashed the CSPP, confirming yet again (in addition to the chart on top), that it was the ECB that made European junk bonds "safer" than US government paper.

Finally, in an insult to fundamental analysis and credit strategists everywhere, the chart below shows what Martin calls "irony", but is instead a beautiful demonstration to what extent the ECB broke the European bond market: around €23bn of Italian Euro BB-rated junk bonds yield less than equivalent-maturity US Treasuries.

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me123me's picture

Central banks are one of the most dangerous entities on the planet. 

Looney's picture


Chart Porn with an Italian accent – that is better than Viagra!  ;-)


GUS100CORRINA's picture


Just can't imagine where those TRILLIONS are going to GO!! GOLD or SILVER maybe along with some CRYPTOs? 

The GOVERNMENTS and the TAXPAYERS are going to be left HOLDING THE BAG!!!

BaBaBouy's picture

Mmmmm... Italian Junk Bonds...

GunnerySgtHartman's picture

I'd like marinara sauce and parmesan/romano cheeses on my Italian junk bonds, please.  And a nice chianti.  :-)

Haus-Targaryen's picture

Its funny what this communicates ... basically those who still own Euro HY debt think the euro is going to strengthen against the USD via the tightening of monetary policy, the problem is it is that that exact monetary policy that has created so much demand for said HY debt.  

This trade goes south for all that hold it as literally nothing can be done to keep it going. 

IF the ECB becomes more accommodative the EUR will weaken against the USD (as the Fed is tightening) and the value proposition to purchase this shit goes away, only buyer would be the ECB.  If the ECB becomes more hawkish and takes the "punch bowl" away, demand for these things dries up and people start taking money off the table.

Damned if you do and damned if you don't.  They best course of action right now is hoping to God that status quo continues forever and ever and ever, amen. 

The ECB really screwed itself.  

Memedada's picture

It is not an accident - it is all by design. The next big crash will make the ownership class richer. Just like all the prior did...

Haus-Targaryen's picture

Well re-denomination risk be damned. We've crossed the Rubicon recently from "high-risk investment" into "stupidity". 

If I held Euro HY debt right now I'd be shoveling it into Sonnemannstraße 20's Tresor as quickly as I could and would be purshasing 10 yr USTs with both hands now that there is effectively no re-denomination risk premium within the EMZ. 

When this HY bubble blows, the ECB is going to either have to print the cash and hand it out to the sovereigns to recap itself, or its going to cease to exist. 

Those in power will not willingly give it up, DAX 50k if these bastards get their way. 



LawsofPhysics's picture

Correct, but don't overthink this...


"Full Faith and Credit"


Tick tock motherfuckers...

Bank_sters's picture

Bingo.   Comparing it against US treasuries as a benchstone.  LOL   Full faith. hahah ha haahah  muahahahah

Trade Maiden's picture

Weed needed...

Forex Kong now heavily investing in Canadian Marijuana Companies. This guy nails it - often.

OpenThePodBayDoorHAL's picture

4/20 bubble.

This is not tobacco, hard and expensive to grow and cure. It's a weed, it's hard to keep it from growing.

Jason T's picture

yes but those African migrants ...invadors or whatever.. are going to create an economic boom in Italy.  


TheSilentMajority's picture

One word:


SoDamnMad's picture

Well then just load up on them Italian bonds. What can go wrong? Migrants, change of government,   Italexit, bank failures, too many NPL, northern half succeeds?

small axe's picture

Draghi doubles down on the power of the ECB to eradicate the business cycle and avoid corporate defaults ... it's fun to play god.

buzzsaw99's picture

That's because USTs are insanely cheap. 

Paul Morphy's picture

The space for bond yields to fluctuate becomes smaller and smaller.

Whent the bond market cracks, and it has to crack at some point, then all Hell breaks lose.

buzzsaw99's picture


besides being totally wrong on everything the word is loose, like yellen's crack.  i've been reading that moronic crack crap for ten years both here and on ticker forum.  oh all hell's gonna break "lose" bondzilla is going to fuck up the city blah, blah, blah.

Grandad Grumps's picture

Maybe these effects are the 2nd and 3rd derivatives of "price control".

jamesmmu's picture

Record VIX, Record Shorts, Lookout Below! Recession Alert! This Is The Single Biggest Bubble in History!

actionjacksonbrownie's picture

It's not a market, it's a world-wide money printing operation. Sow the wind... reap the whirlwind.

rwe2late's picture

I am confused.

Are US Treasuries less risky than Italian junk bonds?

surf@jm's picture

Central bank manipulated italian junk bonds, are not safer than U.S. treasuries, at any interest rate.....

And since they all pay interest that is less than the rate of inflation, they are really all junk........


InnVestuhrr's picture

When the BIG sell-off comes as a result of investors desperately trying to flee the absurdly inflated risk assets markets,


USA treasuries will rocket up to previously unimaginable prices as most of the money leaving risk assets seeks safety to preserve capital.

Rebelrebel7's picture


No need for nuclear war! We will all die  laughing and waiting for sanity!