Skip to main content

Market Overview

How Much Of An Impact Is Oil Having On Credit Markets?

How Much Of An Impact Is Oil Having On Credit Markets?

In a new report, Deutsche Bank analyst Ed Reardon discussed the impact that low oil prices are having on credit markets. Low oil prices are hurting the high-yield energy credit market, but consumer credit and aviation debt markets have benefited.

Deutsche Bank is now projecting $33/bbl for Brent and WTI in the short term. The firm’s commodity analysts believe a significant price recovery in the short term is very unlikely.

Reardon noted that different subsectors of the high yield energy companies have been impacted by the price slump in different ways. Oil services companies were hit hardest and quickest, while E&P companies have the most exposure.

“Using a default scenario from the telecom sector in the early 2000s, together with projected downgrades and further price declines, we find high yield energy could have further to fall, with the exception of CCC energy credits,” Reardon explained.

Related Link: Offshore Drillers In 'Game Of Survival'

While diversity in commercial mortgage backed securities (CMBS) generally reduces risk exposure, Reardon noted that energy-specific tenants and/or regional concentration in areas like Houston have led to weaker credit performance in the space.

However, cheaper gas and fuel has provided a major boost to the consumer ABS and aviation debt markets.

So far this year, the iShares iBoxx $ High Yid Corp Bond (ETF) (NYSE: HYG) is flat, while the iShares IBoxx $ Invest Grade Corp Bd Fd (NYSE: LQD) is up 1.6 percent.

Disclosure: The author holds no position in the stocks mentioned.

Image Credit: Public Domain


Related Articles (HYG + LQD)

View Comments and Join the Discussion!

Posted-In: Analyst Color Bonds Specialty ETFs Commodities Top Stories Markets Analyst Ratings ETFs Best of Benzinga

Don't Miss Any Updates!
News Directly in Your Inbox
Subscribe to:
Benzinga Premarket Activity
Get pre-market outlook, mid-day update and after-market roundup emails in your inbox.
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Fintech Focus
A daily collection of all things fintech, interesting developments and market updates.
Everything you need to know about the latest SPAC news.
Thank You

Thank you for subscribing! If you have any questions feel free to call us at 1-877-440-ZING or email us at