Back in 2104 oil was falling and hundreds of billions of dollars of energy junk bonds and leveraged loans looked to be at risk. Wolf Street had this to say at the time:
Oil and Gas Bloodbath Spreads to Junk Bonds, Leveraged Loans. Defaults Next
The price of oil has plunged nearly 40% since June to $65.63, and junk bonds in the US energy sector are getting hammered, after a phenomenal boom that peaked this year. Energy companies sold $50 billion in junk bonds through October, 14% of all junk bonds issued! But junk-rated energy companies trying to raise new money to service old debt or to fund costly fracking or off-shore drilling operations are suddenly hitting resistance.
And the erstwhile booming leveraged loans, the ugly sisters of junk bonds, are causing the Fed to have conniptions. Even Fed Chair Yellen singled them out because they involve banks and represent risks to the financial system. Regulators are investigating them and are trying to curtail them through “macroprudential” means, such as cracking down on banks, rather than through monetary means, such as raising rates. And what the Fed has been worrying about is already happening in the energy sector: leveraged loans are getting mauled. And it’s just the beginning.
This monthly chart by S&P Capital IQ’s LeveragedLoan.com shows the leveraged loan index for the oil and gas sector. Earlier this year, when optimism about the US shale revolution was still defying gravity, these loans were trading at over 100 cents on the dollar. In July, when oil began to swoon, these loans fell below 100 cents on the dollar. The trend accelerated during the fall. And in November, these loans dropped to around 92 cents on the dollar.
Nothing much came of this. Oil prices stabilized and started to rise, and the drillers went back to borrowing and pumping. The price of oil eventually rose to a hugely profitable $76/bbl, turning America’s oil patch back into a “miracle” destined to make us energy independent for eternity. And energy junk bonds were once again safe for widows and orphans.
But that only lasted a few weeks. For a variety of reasons (OPEC overproduction, US overproduction, a possibly slowing global economy) oil started falling in October.
Still, at first this was not a problem. From Bloomberg five days ago:
Junk Bonds Shrug Off Oil’s Plunge as It Hasn’t Gone Far Enough
Oil may have lost its grip on U.S. junk bonds.
As crude fell for eight straight days through Nov. 7, the longest streak since 2014, high-yield bonds — typically influenced by the price of oil — actually gained. And further, junk debt has barely suffered a scratch as West Texas Intermediate has fallen 20 percent from a four-year high at the start of last month.
During oil’s plunge, high yield debt dropped around 1.2 percent, while junk tied to energy lost about 2.7 percent, data compiled by Bloomberg show. A similar reaction happened during crude slumps earlier this year, even though energy accounts for about 15 percent of the U.S. high yield index.
The muted reaction may be because junk didn’t rise as much as oil this year, and producers survived recent lean years, when crude traded as low as $26 a barrel. However, the bonds may eventually respond.
“It may not be falling as oil goes from $75 to $60 because it didn’t really rally very much as oil went from $60 to $75,” said Spencer Cutter, Bloomberg Intelligence U.S. credit analyst. “If we start to flirt with $55, I think there is a good chance that you will see a real reaction in the bond market.”
Funny that Bloomberg’s credit analyst would mention $55, because that’s exactly where oil went today:
Now the question is, what would constitute a “real reaction” in the junk bond and leveraged loan markets? And will the impact be felt beyond the energy patch?
In any event, it’s definitely one more thing to worry about in addition to trade war, apocalyptic California fires and falling stock prices. Which means the real question is, when does the cumulative weight of all these mini-crises change market sentiment from insouciant to terrified?
16 thoughts on "As Oil Plunges, Energy Junk Bonds Turn Dangerous — Again"
I mostly earn around $22,000-$23,000 a month through the internet. After doing work so passionately, I ended up losing my job in my company where I have given many years. I really required a reliable source of income. I am not into “get rich overnight” packages you see all across the internet. Those are all kind of ponzi referral marketing strategies in which you need to first make interested customers and then sell a product to family and friends or any person so that they will be in your team. On-line job offers many benefits such as I am always home with my family and can cherish a lot of leisure time and go out for family trips. Here’s the simplest way {to https://geofact.tumblr.com
In 2008 most baby boomers still had jobs which allowed them to hold on.
That’s not true anymore.
When the next crisis hits retired baby boomers will be forced to liquidate their stocks, junk bonds and real estate.
ouch…
I know just enough to be suspicious that the entire bond and stock market is manipulated by the Big Banks / Central Banks, which means all this analysis is pure BS meant to keep the little speculators entertained and oblivious to what is really happening.
I generally get somewhere around $24,000-$25,000 per month from the internet. After working so passionately, I ended up losing my job in my company where I have given so many years. I really required a reliable income source. I am not into “get rich overnight” package deals as you can see all over the net. Those are all kind of ponzi referral marketing programs in which you have to first make interested customers and then sell a product to family and friends or any person so that they will probably be in your team. Internet work has many benefits for instance I am usually home with my loved ones and can enjoy lots of free time and go out for vacations. Here’s the best way to start >>> https://fruitpass.tumblr.com
I usually earn somewhere around $14000-$15000 each and every month from the internet. After working so wholeheartedly, I ended up losing my job in my company where I have given several years. I truly needed a reliable source of income. I am not into “get rich overnight” offers as you can see all around the net. Those are all kind of ponzi multi level marketing strategies in which you are required to first make interested customers and then sell a product to friends and family members or any person so that they will probably be in your team. online job has many benefits such as I am always home with my children and can really enjoy a lot of free time and go out for family vacations. Here’s the most convenient way to start >>> https://looksroy.tumblr.com
I basically gain close to $15000-$16000 a month through the internet. I lost my job after doing work for the same organization for years, I wanted reliable earnings. I was not thinking about the “get rich overnight” packages as you can see all over the internet. Those are all mlm schemes or stuff where you need to sell to your friends and family. The best benefit of working on the internet is that I am always home with the kids and also I go out on family trip for long period. Honestly,it is actually simpler than you would believe. I got the instructions kit and within four weeks I started making over $4,000 monthly. You don’t have to be technical, but you should be aware how to use the internet. If you can fill forms and surf websites, you can do it easily, You don’t need to sell anything. It is as simple as being on any social media site. Check it out, what I do… https://intdart.tumblr.com
I generally make nearly $16000-$17000 a month through online. I lost my job after working for the same organization for years, I needed reliable earnings. I was not interested in the “get rich overnight” home programs you can see online. Those are all mlm schemes or stuff where you need to sell to your friends and relatives. The best part of working on the internet is that I am always home with the little kids and also I easily go out on trip for long period. Honestly,it is actually easier than you would believe. I got the instructions kit and within a few weeks I was earning over $4,000 every month. You don’t need to be technical, but you should be aware how to use the internet. If you can fill up forms and surf sites, you can do it easily, You don’t need to sell anything at all. It’s as simple as being on any search engine like google or doing copy paste job. Here’s what I do https://jochare.tumblr.com
Do you really remember the vehicle you want to spend money on and apartment you admired the most ? Everybody has some things in our everyday life which we want to meet . We put in the effort towards it . Even so usually we miss out, but definitely not any more . This excellent on line venture designed in a way that it will help you you make amazingly worthy income . Operate day to day and give your job couple of hrs and get around $12000 weekly . It delivers opportunity to work in your own house place with extremely flexible spare time . You can be your very own boss . It really is a life changer on-line job which can help you obtain what you aspire in life . Right now proceed and check , good things awaiting you >>> https://casegrap.tumblr.com
Do you just remember the family car you wish to acquire along with own home you liked the a lot ? Everyone has somethings in our everyday life which we would like to meet . We do a lot of work in direction of it. Still quite often we miss out, but not ever again . This excellent on the internet chance made in a manner that it contributes greatly you get paid remarkably fantastic income . Function day by day and give your job a small amount of hrs and produce as much as $10000 weekly . It delivers possibility to operate in your own home place with extremely flexible time frame . You are going to be your own boss . It is a life changer on the net job opportunity designed to help you to gain exactly what you wish in your lifetime . So now look and also check , awesome things awaiting you >>> https://jetenoue.tumblr.com
I generally generate about $22,000-$23,000 on a monthly basis over the internet. I dropped my job after working for the same organization for several years. I needed trusted earnings. I was not researching for the “get rich overnight” packages you notice all over the internet. Those are usually pyramid system or stuff in which you must sell to your buddies or persons in the family. Working on the internet has many positive points like I am always home with the little ones and also enjoy lots of free time with my family members in various beautiful beaches of the world. Here’s the most convenient way to start https://plugroy.tumblr.com
I basically make nearly $23,000-$24,000 every month using the internet. I lost my job after doing work for the same corporation for a long period. I needed trusted earnings. I was not thinking about the “get rich overnight” home programs you see online. Those are usually pyramid plans or things that you really have to sell off to your neighbors or members of the family. Working over the internet has many advantages like I am always home with the children and also enjoy time with family on different beaches of the world. Here’s the process to start https://downdye.tumblr.com
I actually gain close to $23,000-$24,000 every month on the net. I got rid of my job after doing work for the same company for years. I required reliable income. I was not researching for the “get rich overnight” packages you notice online. Those are almost always pyramid systems or stuff that you are required to try to sell to your buddies or relatives. Working on-line has many advantages like I am always home with the little ones and also enjoy lots of free time with my family members in various beautiful beaches of the world. Check it out what it is that I do> https://fotogime.tumblr.com
One yr have passed since I decided to quit my office work and that decision changed everything for me…. I started to work at home, for a company I stumbled upon on-line, several hours every day, and I earn much more than I did on my previous job… My payment for last 30 days was 9,000 bucks… Amazing thing about this is the more free time I got with my family…and that the only requirement for the job is simple typing skills and access to internet… I am in a position to enjoy quality time with my relatives and buddies and take care of my children and also going on family holiday together with them very frequently. Don’t skip this chance and try to react fast. Check it out, what I do… find out here
elinelcrat important