A Citigroup debt strategist created a scary-looking clock, and it looks like time is running out

“How long till the Teflon wears off?”

That’s the big question for Matt King, a credit strategist at Citigroup who has a big note out on the bond market.

The note focuses on the performance of corporate bonds, pointing out that while corporate leverage has increased, and there is more uncertainty in the market, spreads are compressing — suggesting traders are actually pricing in less risk.

“The improbable not only happened, it did so without ruffling markets,” he said, referring to the election of Donald Trump as US president and the UK’s vote to leave the European Union. “There is something strange going on,” he added.Citigroup

He points the finger at central-bank spending, saying it is the “key ingredient in the mix,” and critically asks how much longer this can continue.

King notes that the fundamentals of the bond market are deteriorating, with interest coverage ratios (a company’s earnings before interest and taxes divided by the company’s interest expenses) deteriorating.

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Net debt has been increasing, while growth rates for earnings before interest, taxes, depreciation, and amortization are negative.

That would normally suggest that the bond market is in “bubble burst” territory, which is normally bad for the credit and stock market. In fact, emerging-market bonds and high-yield debt are already past this point.

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So what would set the alarm clock ringing? Higher real yields.

A pickup in yields not matched by a pickup in growth would put the bond market on the edge, with King saying a 50-basis-point increase in yields could tip the market over.