Junk Bonds And Oil: What's Going On?
Simit Patel | Dec 04, 2014 01:05PM ET
We've been talking recently about the big decline in oil and how it may be impacting other elements of the world's financial markets. There is one more observation that I thought may be worth adding to the list: the performance of Peritus High Yield (NYSE:HYLD) relative to oil. The chart below illustrates.
Although these high-yield bonds have outperformed oil, they have declined along with oil, exhibiting a clear correlation. This could be another way of trading the same fundamentals that drive oil -- especially since many of the companies issuing junk bonds are in fact in the oil business.
It's worth noting, though, that a strengthening dollar should be beneficial for high-yield bonds, especially in a world in which treasury bonds are issuing near-zero-percent returns.
Is a larger fundamental shift at play here?
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