High-Yield Bonds: Truce

The high yield corporate bond market has performed phenomenally well over the past few months. After having broken sharply lower for months, high-yield bonds bottomed in February and have been rallying furiously higher ever since. What's perhaps most notable is that despite this rally, corporate credit quality has deteriorated further and bankruptcies have surged over this same time period. Perhaps this high-yield rally is signaling that the worst will soon be over for the asset class. Or then again, maybe it has been nothing more than a truce for the embattled category in an ongoing war that remains long from over.
It has been more than two months since our last article from late March when we visited the high-yield hospital to check on the status of our patients. But what is immediately notable on our return is that the hospital is all but cleared out. Where have all of the patients gone?
Heaven Couldn't Wait
Nearly all of the terminally ill and intensive care have departed from us via bankruptcy or some form of restructuring. This includes Breitburn Energy Partners (BBEP), Peabody Energy (BTU), Seventy Seven Energy (NYSE: SSE), Ultra Petroleum (UPL), Linn Energy (Nasdaq: LINE) (LNCO), Exco Resources (OTC:EXCOF) and Halcon Resources (NYSE: HK). This group also was joined by a couple from the front lines including CHC Group and Midstates Petroleum (NYSE: MPO). In short, the mortality rate in the high yield corporate bond space has surged over the... Read more