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Morning Commentary: High yield rocked by volatility; falling oil prices hit high beta energy bonds
By Paul A. Harris
Portland, Ore., Oct. 15 – Volatility in the global capital markets weighed heavily on high-yield bonds and indexes on Wednesday, sources said.
The CDX 23 index of high-yield credit default swaps was 104 1/8 bid, down ¼ point to 3/8 point in early trading, a trader said.
Another trader said that high-yield exchange traded funds are believed to have undergone sizable outflows on Tuesday, while outflows for actively managed funds were less than $100 million on the day.
Energy bonds hammered
A precipitous drop in crude oil prices that has seen the West Texas Intermediate benchmark drop to $81.71 per barrel on Wednesday morning, down $4.00 per barrel since last Friday, is putting energy bonds – especially those from issuers with lower-quality credit ratings – under intense pressure, a trader said.
“There is a market right now for high-quality on-the-run energy paper,” said the trader, adding that bonds of Chesapeake Energy Corp. are only down a point.
Moving down the credit spectrum, however, the bonds of drilling companies and oilfield services providers are down 3 to 5 points, the trader said.
Drillers are getting hit especially hard, with offshore drillers getting it the worst.
Paragon Offshore Ltd.’s 6¾% senior notes due July 15, 2022 were 73 bid, 75 offered, 2 points wider, on Wednesday morning.
The notes priced in July in a $500 million tranche that was sold at par.
At the same time, Paragon Offshore’s 7¼% notes due August 2024, which came the same day, also at par in a $580 million tranche, were 71¾ bid, 72 offered, according to a different trader.
Meanwhile in the primary market, all is quiet.
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