Bond prices of US oil and gas companies are falling after a sharp drop in oil prices, which increases the risk of default, writes The Financial Times.
The total volume of outstanding bonds of American oil and gas producers is $936 billion, and the yield of almost 12% of them (about $110 billion) now exceeds the return of US government bonds with comparable maturities of more than ten percentage points. Securities with such spreads are traditionally classified as highly risky.
Among the bonds of companies with "junk" ratings, that is, below "BBB," nearly two-thirds fall on the share of high-risk ones. In general, the volume of securities with non-investment ratings is $175 billion.
In 2020, the US oil and gas producers must pay off bonds almost by $27 billion, according to S&P Global. Analysts warn that negative investor sentiment will put pressure on companies' ability to refinance debts.
Meanwhile, Stephen Scherr, Goldman Sachs CFO, believes that US energy companies are not in a state of "immediate stress," and financial markets are "not broken."
Speaking at the forum, he said that the bank is vigilant regarding investments in the oil and gas industry after the collapse of oil prices, as well as in the hotel business due to the spread of coronavirus.
Financial markets have shown volatility in recent trading sessions, but Scherr said that while the market situation cannot be called "orderly," the markets are far from collapse. "We see a decrease in liquidity in many markets, and price fluctuations reflect this," he said.