Investors Selling Junk Bonds in Oil Rout
Amid a free fall in the price of crude oil, investors withdraw nearly $1.9 billion from risky investments like low-rated corporate bonds (known as “junk bonds”).
According to data from Barclays PLC, investors are selling junk bonds at the fastest clip in 18 months. This upheaval could cause more lasting weakness in high yield, particularly if economic growth slows or if individual investors get spooked and see a reason to pull more of their money.
The slide in oil price caused a handful of energy companies to delay or cancel their borrowing plans, which also signals a growing wariness of investors about owning risky debt and energy’s trickle-down effect on the economy. Energy bonds constitute 14% of the U.S. high-yield bond market.
Even non-energy high-yield bonds have been hit as investors rushed to sell whatever debt they could to raise cash. Goldman Sachs Group Inc. is forecasting further downside in prices and lingering price volatility.
In addition, dealer middlemen, who traditionally cushioned any selling pressure, have been re-evaluating their willingness to buy and sell bonds for their clients. They have been especially reluctant to step in around year-end, raising costs for investors trying to complete trades.
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