Where's the Yield? Don't Look To Crypto Lending, At Least Not Yet
Frank Holmes | Sep 13, 2021 03:23PM ET
With real rates trading below zero right now, many yield-starved investors are being forced into riskier and riskier assets, including high-yield junk bonds. But even these are no longer offering a positive real return, what with inflation at multiyear highs.
According to one estimate, by Deutsche Bank’s Jim Reid, a whopping 85% of the U.S. high-yield bond market currently yields below the annual inflation rate. It’s important to note that this figure has never been above 10% in the past. Even if the consumer price index (CPI) were to fall to 3% (from 5.4% currently), that would still be above 35% of the high-yield market.
All Coinbase knows at this point, Grewal writes, is that it can “either keep Lend off the market indefinitely without knowing why or we can be sued.” He adds that regulatory uncertainty and ambiguity “only serve to unnecessarily stifle new products that customers want and that Coinbase and others can safely deliver.”
Indeed, investors are starving for yield right now, and it appears some will remain so.
As I’ve said before, commonsense regulations are important to help maintain a safe, level playing field for all parties. Imagine a basketball game with no referees. Cheating would have no repercussions. Now imagine the same game, but with too many referees, and with the rules changing arbitrarily. Unfortunately, that’s the scenario Coinbase finds itself in right now.
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The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies. The Bloomberg Pan-European High Yield Index measures the market of non-investment grade, fixed-rate corporate bonds denominated in the following currencies: euro, pounds sterling, Danish krone, Norwegian krone, Swedish krona, and Swiss franc. Inclusion is based on the currency of issue, and not the domicile of the issuer.
The consumer price index (CPI) is an index of the variation in prices paid by typical consumers for retail goods and other items. The harmonized index of consumer prices (HICP), used primarily within the European Union, is a measure of prices paid by consumers for a market basket of goods and services. It is calculated using the same methodology across countries to allow for comparable measures of inflation. The yearly (or monthly) growth rates represent the inflation rate. The dividend yield, expressed as a percentage, is a financial ratio (dividend/price) that shows how much a company pays out in dividends each year relative to its stock price.
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