The recent hysteria over negative interest rates has been hard to ignore.
As central banks around the world have abandoned plans to tighten monetary policy, bond yields have plunged below zero, meaning that investors are effectively paying for the privilege of lending to both countries and companies.
More than a quarter of the global bond market now carries a sub-zero yield. The trend reached a new peak — or nadir, depending on your perspective — on Wednesday, when Germany sold 30-year debt at a negative yield for the first time.
It is not just that the idea of a lender paying a borrower seems paradoxical.
There is also a creeping anxiety that central banks are doing more to boost asset prices than the underlying economy. The fear from some quarters is that investors will have to back ever-more speculative borrowers, which have no hope of ever the repaying the money, if they want to get hold of a decent yield.
Fund managers in London and Frankfurt only need to look north to see what might happen.
Negative rates have long been a fact of life in the Nordics. Sweden was a pioneer of sub-zero rates in 2015, while Danish bank Jyske this week imposed negative rates on high cash balances.
Against this backdrop, the regional corporate debt market has developed a reputation as the last refuge of the scoundrel, a place where dubious borrowers that are unable to raise financing elsewhere can find willing buyers for their bonds.
The latest casualties are the bondholders of Iceland's Wow Air, who on Tuesday discovered that they are likely to recover precisely nothing from the airline's bankruptcy.
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An investor presentation from Wow last summer described a €50 million ($86.6m) Swedish-law bond sale as "a bridge to an envisaged IPO". Instead, it rapidly became a bridge to nowhere. Less than two weeks after the sale of the debt in September, Wow breached the terms of the bonds, as its debt-to-earnings ratio rose above agreed limits. Six months later, the low-cost carrier defaulted.
The failed airline was waved with flourescent batons to the Swedish debt markets by Pareto Securities, a Nordic broker that has built a niche in serving international companies. The firm's head of compliance told the Financial Times that it is "unfortunate" that the bond defaulted so soon after it was issued.
But those unhappy accidents have become a common occurrence. Earlier this month bondholders were forced to take control of the UK-headquartered telecom company Lebara, for example, which managed to raise a €350m Norwegian-law bond in 2017 and then missed multiple deadlines to file its annual audited accounts the following year.
In the case of Wow Air, warning signs were clear for investors who took even a cursory look at the investor presentation, which laid bare the company's negative earnings and hefty lease liabilities.
But Wow offered something in short supply in the cold climes of Scandinavia: a 9 per cent yield.
Written by: Robert Smith
© Financial Times