09/11/17

Too Safe to Fail: Implied Default Rate for European Junk Bond is Negative 1.1%



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Too Safe to Fail: Implied Default Rate for European Junk Bond is Negative 1.1%
// Silver For The People

themaven.net / by Mike Mish Shedlock / November 9, 2017

Apparently, European junk bonds are too safe to fail. Fundstrat Global Advisors' Thomas Lee says the market-implied default rate for a European junk bond sits at a negative 1.1%.

The market's expectation for an average European high-yield bond to default on its payments stood at negative 1.1% on Oct. 26, versus a long-term average of a positive 5.8%, according to an analysis released Friday by Thomas Lee, the head of research at Fundstrat Global Advisors, who attempted to demonstrate the pernicious consequences of quantitative easing.

"We see this creating a 'moral hazard' which allows bad businesses to borrow money and misallocate. After all, wouldn't anyone want to borrow money at cost of debt less than the U.S. government?" said Lee.

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