Commodities junk debt faces more pain with contagion threat: UBS

New York

A PROLONGED slump in oil prices promises more pain for commodities-related debt and threatens to spread to other parts of the leveraged-finance market, according to UBS Group AG.

Energy bonds have borne the brunt of crude's plunge to a 12-year low, falling 10 per cent this year after a 24 per cent drop last year. With no end in sight to the oil slump, the market may not be adequately pricing in defaults or compensating investors for mark-to-market and liquidity risks for lower-rated junk companies, UBS strategists led by Matthew Mish wrote in a note on Wednesday.