How much worse is 2016 than 2015?
Junk bonds, trading like stocks since February, have skyrocketed and yields have plunged. But that doesn’t mean that the bloodletting is over.
The trailing 12-month US high-yield bond default rate jumped to 4.9% at the end of June, the highest since May 2010 as the Financial Crisis was winding down, Fitch Ratings reported today. The first-half total of $50.2 billion of defaults already exceeds the $48.3 billion for the entire year 2015.
Energy companies accounted for 56% of those defaults. The energy sector default rate shot up to 15%. Within it, the default rate of the Exploration & Production (E&P) sub-sector soared to 29%!
And the default party isn’t over: ‘Despite the run-up in prices since the February trough, there will be additional sector defaults, with Halcon Resources expected to file imminently,’ Fitch reported.
Issuance of junk bonds in the first half has plunged 34% from a year ago, to $120.5 billion, according to the Securities Industry and Financial Markets Association (SIFMA), as junk-rated energy companies are having one heck of a time borrowing money and issuing bonds. The fact that investors – who’ve now been burned for nearly two years – are reluctant to extend new credit to teetering oil & gas companies precipitates their default and bankruptcy. Fitch:
This post was published at Wolf Street by Wolf Richter ‘ July 12, 2016.