Coronavirus and oil price shock: a perfect storm for high yield debt?
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THE double hit has brought high yield corporate bonds back to more attractive levels, but investors must look closely at fundamentals to avoid possible value traps.
Saudi Arabia's decision to sharply increase oil supply resulted in the largest drop in the oil price since 1991, with the price of crude oil falling below US$35 per barrel. This has had a significant knock-on effect on the credit market.
Saudi Arabia's actions may eventually result in supply destruction and significantly higher prices. However, in the near term, the reality is that a lot of cash-strapped US shale producers will struggle to survive with the oil price in the low 30s.
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