The European Central Bank is losing control of its debt market, and this could lead to extremely serious consequences.
Despite the fact that the central bank's printing press is still operating at full capacity, and asset purchases are continuing, the Old World debt market is collapsing: bonds are rapidly becoming cheaper.
The yield on European corporate bonds with investment ratings has soared to a maximum in the last six months, and its dynamics are very different from the dynamics of asset purchases by the ECB.
There is nothing surprising in the fact that against the backdrop of a rapid increase in bond yields, stocks are hit. The market’s working mechanism is very simple: bonds are considered the least risky investment, and if their yield is comparable or higher compared to the dividend yield of shares, then the latter become unattractive to investors.
It is worth saying that a similar picture is observed in the United States. There, the yields of 30-year securities reached a key mark of 3%, and 10-year bonds came close to 2.75%. This fact is already causing concern and tension in all markets.
No wonder even the most stable market in the world, the American one, has gone down in the last few days.
The overall picture is this: two of the three largest debt markets are at a critical point. In fact, only the Bank of Japan retains market control.
Recall that the regulator is going to keep the profitability not higher than 0.1% if necessary, but today there have already been attempts by speculators to test the situation.
The Bank of Japan appeared and reassured the public. Otherwise, if speculators managed to break through this mark, most likely, a very powerful wave of sales would swept around the world.