Between an 87-year-old Italian, a bearded American, two Japanese sociopaths, and a world in desperate search of 'yield', the yields on Spanish 10Y debt have collapsed in recent days to 4.50% - its lowest since November 2010 (and Italy at around 3.54% also close to 29 month lows). With the backdrop that no harm can ever come to another government, corporate, or high-yield bond ever again, the $660 billion in excess Fed and BoJ liquidity [6] needs to be invested and why not grab the riskiest stuff there is. European stocks ended mixed with Italy and Spain soaring and the rest in the red or unch. Corporate credit rallied, outperforming stocks, but Swiss 2Y rates remained at 3-month lows. Europe, market indications aside, remains very unfixed; but given the leadership's insistence that the market knows best, we assume we should not expect more austerity or belt-tightening as 'investors' are willing to take the bankers' promises as gospel. Just as a reminder - we saw this kind of 'confidence' before in 2011, did not end so well...
The scramble for yield funded by cheap carry continues...
[7]
As The WSJ reports [8]:
Two of Japan's biggest life insurers said Monday they might increase their purchases of foreign bonds and reduce or keep steady their purchases of domestic bonds this fiscal year, as the central bank's aggressive easing program forces big investors to rethink plans. Nippon Life Insurance Co., Japan's largest life insurer, and Asahi Mutual Life Insurance Co., the eighth-largest, both said they will consider putting more new investment money into foreign bonds if domestic yields remain near historic lows as the Bank of Japan.
We are sure this will end well...