Everything Is Fixed: Distressed Opportunities In HY Energy Magically Disappear

Now look, I know higher oil prices are welcome news for HY, but let’s not pretend like everything is suddenly fixed just because crude bounced off what were absurdly oversold levels early last year.

Remember, HY defaults rose to a post-crisis high (5.06%) in 2016 on the back of soaring defaults in the O&G/Metals and Mining cohort (27.64%). But you know how markets have a tendency to get ahead of themselves, right?

Well, have a look at this chart from Goldman:

hy

(Chart: Goldman)

Here’s some color from the bank:

To quantify the degree of compression in the distressed market, the share of the HY iBoxx index trading below $80 has fallen sharply, from a post-crisis high of 25.6% last February to 2.8% of the HY market today (Exhibit 2). The collapse in distressed opportunities is even more evident in the HY Energy space where nearly 3 in every 4 bonds traded below $80 last January compared to a paltry 1.7% share today (Exhibit 2)

Everything. Is. Fixed.

Just pray OPEC sticks to its production cut promises.

 

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