Brent crude oil falls more than 14% from the start of this month to $42.47, nearing November lows.
- According to CNBC, “Oil prices have tumbled more than 20 percent this year, marking its worst performance for the first six months of the year since 1997.”
How does this impact the debt market?
“The broader junk bond space [in U.S.] has… remained relatively insulated from the rising anxiety over the energy sector,” wrote the Financial Times. However, if oil prices fall further, junk bonds, which are sensitive to oil-price movements, could feel some pain.
Spreads are also widening for junk-rated bonds from Chinese oil and gas companies. According to data from BondEvalue:
- Hilong Holding’s recent issuance of 7.25% 2020s fell 3.1 points from the start of the week and are now trading at lows of 96.23.
Earlier this week, Hong Kong-based energy company, Brightoil Petroleum, postponed their dollar-denominated 3-year-bond sale. The deal failed to attract investors despite the high initial yield guidance of 9%. Junk bonds are usually issued at higher yields to compensate for holding riskier securities. Bloomberg reports ‘adverse market conditions’ as reasons for the fall through in the deal. This postponement comes on the heels of two others this year, Soechi Lines and Eros Films.