Energy Junk-Bond Defaults Are Coming

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By Christine HughesCanada. Chief Investment Strategist, OtterWood Capital:

High yield bonds are signaling concerns about energy companies’ ability to pay back debt (since bonds lead stocks, we have to pay extra attention to them!). So far, defaults have been contained, and they need to stay that way for the US economic recovery to continue.

The problem is debt issued by energy companies when oil prices were high and interest rates were super-low are coming due (Bloomberg wrote an interesting article about this back in December which you can read here). If oil prices remain low the weaker energy companies will most likely start to default. The fear is this could spread to other areas of the economy.

And this is what energy junk bonds are doing now – they’re rolling over again, after the brief recovery from the crash late last year:

S&P 500

Energy stocks aren’t painting a pretty picture either; the energy sector as a whole just broke a 15 year trend line and chart guys see more downside from here.

S&P 500

By Christine Hughes, OtterWood Capital

The permanently cash-flow-negative shale oil & gas drillers in the US are facing a unique phenomenon in the era of ZIRP and endless money: running out of cash. Read…  It’s Happening: Debt Is Tearing up the Fracking Revolution

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