The riskiest end of the corporate bond market suffered a severe nervous breakdown in response to the oil spill, falling prices and the cost to investors of default insurance increasing in Europe and the states -United.
After a dispute broke out between Saudi Arabia and Russia over the weekend, lowering oil prices by more than a fifth in Monday’s trading, bonds issued by US shale producers felt the pressure.
Whiting Petroleum bonds maturing next year, downgraded last week by S&P Global, fell to 46 cents on the dollar Monday morning from nearly 100 cents in January and 57 cents in early March.
Western Petroleum bonds maturing in 2049 lost about 30 cents on the dollar Monday to around 59 cents. Elsewhere, the Antero Resources 2023 bond has gone from over 50 cents a dollar to around 30 cents.
The cost of default insurance on high-yield U.S. bonds soared to 606 basis points on Monday, surpassing its peak in the latest energy debt turmoil in 2016, according to data from IHS Markit.
Stress raises concerns that investors may face pain across the asset class.
“Developments in the oil market over the weekend could hardly have come at a worse time for the US high-yield market,” said Craig Nicol, analyst at Deutsche Bank. “An almost 20% dip in oil overnight will likely cause carnage on the market today. The big issue, however, is the contagion to the wider high-yield market outside of energy. In our opinion, it is inevitable. “
Safer corporate bonds are already creaking, with premium default protection also reaching 125 basis points, the highest level since 2011, marking the largest increase since the collapse of Lehman Brothers in 2008. Meanwhile , the high-yield bond from BlackRock iShares The exchange-traded fund, known by its symbol HYG, fell 4.8% in the pre-market trade, reaching its lowest price since the end of 2018.
A number of other indebted energy companies have also suffered, including Laredo Petroleum, Antero Resources, Oasis Petroleum, Range Resources and California Resources. Bonds to natural gas supplier Chesapeake maturing next year fell from 70 cents a dollar to 56 cents Monday.
“We are on the cusp of a new round of restructuring of energy companies, both in court and out of court,” said John Dixon, a high yield bond trader at Dinosaur Financial Group. “Many of these companies already spending more than [their] cash flow, look for drastic cuts in capital spending, which will further hamper already struggling services and suppliers. “
Rating agency Moody’s noted in a February report that North American exploration and production companies had $ 86 billion in debt maturing before 2024, with a peak in 2022 for the worst performing issuers noted.
Access to bond markets is already tight for energy companies, which increases the risk that they will not be able to refinance their debt, pushing them into bankruptcy.
“Recent investor behavior suggests this. . . companies will continue to benefit from exceptionally limited access to capital compared to previous years and to other sectors, significantly increasing their cost of capital in the medium term and the risk of default, “said analysts Sajjad Alam and Steven Wood in the report.
The riskiest end of the corporate bond market suffered a severe nervous breakdown in response to the oil spill, falling prices and the cost to investors of default insurance increasing in Europe and the states -United.
After a dispute broke out between Saudi Arabia and Russia over the weekend, lowering oil prices by more than a fifth in Monday’s trading, bonds issued by US shale producers felt the pressure.
Whiting Petroleum bonds maturing next year, downgraded last week by S&P Global, fell to 46 cents on the dollar Monday morning from nearly 100 cents in January and 57 cents in early March.
Western Petroleum bonds maturing in 2049 lost about 30 cents on the dollar Monday to around 59 cents. Elsewhere, the Antero Resources 2023 bond has gone from over 50 cents a dollar to around 30 cents.
The cost of default insurance on high-yield U.S. bonds soared to 606 basis points on Monday, surpassing its peak in the latest energy debt turmoil in 2016, according to data from IHS Markit.
Stress raises concerns that investors may face pain across the asset class.
“Developments in the oil market over the weekend could hardly have come at a worse time for the US high-yield market,” said Craig Nicol, analyst at Deutsche Bank. “An almost 20% dip in oil overnight will likely cause carnage on the market today. The big issue, however, is the contagion to the wider high-yield market outside of energy. In our opinion, it is inevitable. “
Safer corporate bonds are already creaking, with premium default protection also reaching 125 basis points, the highest level since 2011, marking the largest increase since the collapse of Lehman Brothers in 2008. Meanwhile , the high-yield bond from BlackRock iShares The exchange-traded fund, known by its symbol HYG, fell 4.8% in the pre-market trade, reaching its lowest price since the end of 2018.
A number of other indebted energy companies have also suffered, including Laredo Petroleum, Antero Resources, Oasis Petroleum, Range Resources and California Resources. Bonds to natural gas supplier Chesapeake maturing next year fell from 70 cents a dollar to 56 cents Monday.
“We are on the cusp of a new round of restructuring of energy companies, both in court and out of court,” said John Dixon, a high yield bond trader at Dinosaur Financial Group. “Many of these companies already spending more than [their] cash flow, look for drastic cuts in capital spending, which will further hamper already struggling services and suppliers. “
Rating agency Moody’s noted in a February report that North American exploration and production companies had $ 86 billion in debt maturing before 2024, with a peak in 2022 for the worst performing issuers noted.
Access to bond markets is already tight for energy companies, which increases the risk that they will not be able to refinance their debt, pushing them into bankruptcy.
“Recent investor behavior suggests this. . . companies will continue to benefit from exceptionally limited access to capital compared to previous years and to other sectors, significantly increasing their cost of capital in the medium term and the risk of default, “said analysts Sajjad Alam and Steven Wood in the report.