OTC MARKET NEWS Powered By Quantifi

Junk Bond ETFs to Diminish Default Energy Producer 

August 23, 2016

Tom Lydon, NASDAQ

Credit spreads on speculative-grade junk bonds have rallied back to levels last seen before the sell-off in 2015.

Huge oscillations in oil prices have caused spreads to widen in recent weeks, but junk bond investors who are wary of credit risk among the more leveraged oil producers can turn to a relatively new high-yield, ex-energy exchange traded fund.

The iShares iBoxx $ High Yield Corporate Bond gained 10.9% and the SPDR Barclays High Yield Bond rose 11.6% year-to-date, rallying above their 2015 highs and regaining most of the lost ground earlier this year as diminishing volatility and an extended low-rate environment fueled a more risk-on attitude among fixed-income investors.

However, speculative-grade debt slipped toward the end of July on renewed risk aversion associated with plunging crude oil prices , with the West Texas Intermediate oil market falling back into a bear market. Junk bonds have exhibited some very high correlation to crude oil prices as observers fear that lower oil prices would make it harder for highly leveraged oil producers, namely the upstart shale oil industry, to service the debt and potentially cause a wave of defaults. Read more

Comments are closed on this post.


Submit your email to receive our newsletter