Low interest rates and quantitative easing in Europe have not only had the effect of flattening maturity and credit curves as investors chase yield, they are beginning to distort language itself.
At a meeting with some senior bankers at a major international bank, one jokingly referred to 60 year corporate hybrid bonds as ‘dated perps’.
We don’t know if that’s a term actually being thrown around in the market, but it wouldn’t surprise us. In a world where debt is equity and investors are more and more finding they have to pay to have exposure to risk, the idea illustrates a sort of terrifying non-logic that has been taking shape since the crisis.
On April Fool’s day this year, GlobalCapital published one of the best read stories in its history: a prank story that announced Greece was issuing a 0% coupon perpetual bond. We know many people read it, we don’t know how many survived or came out the other side with their sanity intact, as reporters were told that many people believed the headline before they opened the story.
So, as ‘now’ and ‘forever’, 0% yield and “relative value” each converge in the bond world, get ready for some more mind blowing contradictions. Sinking rate bonds, anyone?
