Face The Facts

| July 14, 2019
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I recently read a disheartening but accurate assessment of how the combination of continued historically low interest rates plus future obligations creates a dangerous alchemy of reaching for yield.

The paper is authored by Danielle Lacalle and is entitled Junk In Your Pension: A Side Effect of Financial Repression.

Here are the highlights facts:

  • Currently, there are only 60 basis points that separate “junk” corporate bonds from the highest quality high-yield ones, according to Morgan Stanley Wealth Management’s global investment committee.
  • The amount of negative yielding debt has reached a historic high of $12.5 trillion.
  • The number of negative yielding junk bonds in Europe has soared from zero to fourteen in a few months.
  • Net inflows into junk bonds soared in June to $10.6 billion, the largest increase over any such period since 2017, according to the Financial Times.
  • Pension funds hold up to 30% of assets in illiquid products as well as equities. In Europe, demand from Asian -mostly Japanese pension funds- for risky peripheral Eurozone debt has also increased to the highest level since 2008 despite historic-low yields and rising political tension and fiscal imbalances.

Stay Tuned, Disciplined & Patient! {TJM}

The Investor & Character Equation (ICE) | S + R = O

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