Morning Commentary: High-yield energy bonds nosedive as investors fear mass bankruptcies

By Paul A. Harris

Portland, Ore., March 9 – With the headlines providing a backdrop worthy of a Hollywood thriller – a lethal virus on the march, the U.S. stock indexes sustaining a drop of sufficient magnitude to temporarily halt trading, and 10-year Treasuries yielding below ½% – high-yield investors did not appear to be in panic mode on Monday, said a trader, who was marking junk 1 point lower on the morning.

That's away from the energy sector, the source specified.

By every conceivable metric the high-yield energy sector is taking a hammering of historic proportions, sources say.

A trader who focuses on quality energy names was seeing long-dated energy paper down 20 points to 30 points on Monday morning.

Short-dated energy was down as much as 35 points, the source specified.

Investors seem to be assuming mass bankruptcies in the sector, the trader remarked.

With the barrel price of West Texas Intermediate crude down a jaw-dropping 18¾%, or $7.74, at $33.54, another trader had some specifics.

The Whiting Petroleum Corp. 5¾% senior notes due March 2021 were traded Monday morning at 23 bid, down 22½ points.

The Nabors Industries, Inc. 5¾% senior notes due February 2025 were down around 20 points on Monday, the trader said.

The Transocean Inc. (RIG) 8% guaranteed senior notes due 2027 were down 25 points.

The WPX Energy, Inc. 4½% senior notes due January 2030 were down 10½% on the day, said the trader.

On Friday Fitch Ratings said it upgraded WPX Energy's senior unsecured debt ratings to BBB- from BB, as the company closed its acquisition of Felix Energy in a leverage-neutral deal that Fitch said will be immediately accretive to WPX's credit profile.

Dire circumstances in the oil patch went from bad to much, much worse over the weekend when Russian president Vladimir Putin responded to calls from Saudi Arabia for discipline among oil producers by announcing that present oil prices were sustainable for the Russian economy, sparking a price war between the two petroleum titans.

Although away from energy, news on the high-yield bond front is nowhere near as dire, energy, which comprises about 15% of the junk index, is clearly creating a drag on the entire asset class, sources say.

Earlier Monday in Europe, with the DAX and FTSE trading around 7½% lower on the day, the iTraxx Crossover index spiked by a historic 138 basis points, or about 36%, according to a source in London.

Cash bonds were down around 2%, the source added.

Bonds with no immediate exposure to coronavirus, and in some cases bonds of companies that might even stand to profit from the pandemic, were lower on the day, the source said.

Euro-denominated bonds of Netflix, Inc. were down 3 points on the day, the official in London specified.

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