Oil less than $10 per barrel away from level where it could begin wreaking havoc across bond market

Oil less than $10 per barrel away from level where it could begin wreaking havoc across bond market

Oil is less than $10 per barrel away from a level where it could begin wreaking havoc across the high-yield bond market. When crude drops below $35 a barrel, the debt-to-enterprise value ratios of high-yield energy companies typically climb above 55 percent, according to Deutsche Bank AG strategists including Oleg Malentyev. That would increase risk premiums and affect the wider high-yield market, they said. “Oil weakness to this point is problematic directly to energy valuations but is not yet a cause for credit-loss concerns in energy or the broader high-yield market,” the strategists said in a research note. “We are getting closer to the point where this narrative could begin to change.” Junk-bond investors are on the lookout for any signs of contagion from oil’s latest foray into a bear market after a plunge in the commodity last year sent yields to the highest level in more than four years. The average yield on the Bloomberg Barclays Global High Yield Index advanced 14 basis points to 5.33 percent last week, while WTI crude’s drop below $43 a barrel caused at least three companies to scrap bond and loan sales. Read More…

 

 

Credit By: Financial Express

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