Search this website. You can use fund codes to locate specific funds

Weekly credit insight

Chart of the week: opportunities in the energy sector

Recent headlines have been dominated by news of record issuance of European credit. But lost behind the noise is the surge of primary-market activity in the energy sector.

Last year was a difficult one for the energy industry. Lower-rated issuers were still struggling to adjust to lower prices following the 2014-2016 commodity-price crash, which culminated in increased volatility and a pick-up in defaults in 2019. Spread levels reached two standard deviations below the index on a spread-ratio basis, and with a rise in dispersion – investors increasingly differentiating between issuers that can withstand volatility and those that can’t – sentiment turned sour.

Figure 1: The oil price ticks up

Source: Hermes Credit, ICE bond indices, Bloomberg, as at December 2019.

But the mood improved in the fourth quarter: the oil price rose and investors took a (cautious) position in energy, resulting in the sector recording strong performance. Chesapeake Energy’s senior-secured debt deal also bolstered sentiment, as investors came to realise that the struggling company was still able to deal with upcoming maturities.  

Unsurprisingly, the recent spike in the oil price and implied volatility in the options market prompted energy issuers to tap the market. As a result, the energy sector now accounts for nearly half of all high-yield supply in developed markets year-to-date – a total of almost $8bn.

More Insights

SDG Engagement Equity commentary: Eagle Materials
Eagle Materials, as the largest domestic-only producer of cement, aggregates, and wallboard in North America, could support more sustainable cement manufacturing.
SDG Engagement Equity commentary: National Instruments
National Instruments, a technology company supporting evolving test and measurement needs, is well placed to bolster gender parity in Science, Technology, Engineering and Mathematics (STEM) industries.
Inflation: what if they are wrong?
As our portfolio managers share their views on inflation, we ask if it's time for investors to think the unthinkable
How investing in biotech can help achieve the SDGs
From pioneering therapies to renewable food sources, biotechnology has the potential to address many of humanity’s greatest challenges, as aligned to the United Nations’ Sustainable Development Goals (SDGs).
Re-entanglement: why debt and reality must reconnect
The long-term relationship between credit quality and the global unemployment rate appears to have broken down of late. But why? Fiorino once again probes the debt universe in search of deeper meaning...
What is driving the sudden spate of telecoms buyouts and is it good for investors?
The problem child of the equity market – European telecoms - is the target of a sudden spate of buyouts. Joe Howes, Credit Analyst, lifts the veil on what’s driving interest in this unloved sector and what it means for investors?