In December 2008, as the “world was ending,” European junk bonds hit a record high yield of 25.97%. Forecasts of financial Armageddon were widespread, and few could envision a scenario in which subordinated bondholders would receive anything but pain.

But the world did not end in December 2008. And over next five years, European junk bondholders would receive nothing but pleasure, earning a record return of 23% per year.

Fast forward to today and we have reached the opposite extreme, with European junk bonds at an all-time low yield of 2.67%.

Say what now? 2.67%!

Yes, I’m as stunned as you and I’m the guy who wrote last year that “there is no impossible in markets.”

With negative interest rate policy in place for two years now throughout Europe, investors are doing what they do best: reaching … for … yield.

While reaching has been harmless thus far in 2017 as yields continue to fall, the inevitability of bond math is lurking: lower starting yields = lower future returns.

And at a 2.67%, this suggests the prospective returns for junk bonds in Europe have never been lower. Unless negative interest rates policy somehow leads to a negative default rate, buyers of these bonds today are going to be highly disappointed.

Exactly when are they going to be disappointed? I don’t know. A low yield can go always lower and it can take time before a poor risk/reward translates into a poor return. In the last cycle, European junk bond yields hit a low of 5.38% back in February 2005. These bonds would go on to gain an additional 19% (total return) until they peaked more than two years later, in June 2007. But they would soon give that all back, and by December 2008 buyers of junk bonds from February 2005 had a cumulative loss of close to 30%.

Will the same thing happen today? No, every time is different and we are already in uncharted territory here. Counting on the same outcome as the past is a fools game.

The best we can say when high yield becomes low yield is that investors would be wise to proceed with caution. Negative interest rates may defy rationality but they do not defy bond math and risk/reward.