To find the market’s biggest weakness, a good place to look is at the most crowded movie theater with the smallest exit.

European bonds.

You’ve probably seen the charts of European high yield floating around, so I won’t reproduce it here. Yields in the low 2s for BB credits. There was also a European corporate issuer that managed to issue BBB bonds at negative yields a few weeks ago. I think that might have been the top.

No shortage of stupid things these days:

But European bonds are potentially the stupidest. Maybe even stupider than bitcoin!

Although there is nothing stupid about it—the ECB has been buying every bond in sight, and there’s lots of money to be made frontrunning central banks.

Still, it’s possible that we’ve reached the logical limit of emergency monetary policy, and the ECB is going to have to exit sometime in the near future. The question is: how are they going to exit without blowing up the bond market?

And it’s not just the European bond market. The effects have been transmitted to other bond markets as well, like our own. If the ECB exits, or, heaven forbid, the BOJ tries to exit at the same time—and screws it up—there is a potential for a real meltdown.

What would a meltdown look like? Fact: any time ten-year yields have backed up 200 basis points, there has been a crisis. You have to go back to 1994 for the last one. And we even had a mini-crisis in 2013, which we called the taper tantrum.

If tens backed up from 2.3% to 4.3%, it would be a crisis of gargantuan proportions.

What is the probability that it will happen?

Disorderlies

It’s tough to think of these things in terms of probabilities. For example, it’s very probable that the ECB will begin its exit next year. But what is the probability that they screw it up?