As oil prices have tumbled, the cost of buying default protection on the debt of energy companies has skyrocketed. The cost of buying default protection tracked in the S&P/ISDA CDS U.S. Energy Select 10 Index has nearly tripled from a low point in June 2014. As a result, default spreads for the energy sector are now higher than spreads for junk bonds indicating the energy sector is one of the riskiest sectors in the bond markets.
The S&P/ISDA CDS U.S. Energy Select 10 Index ended at 377bps up from 130bps in June 2014. Translated into dollars, the annual cost of buying default protection on $10million of debt on these entities has risen from $139,000 to $377,000. The S&P/ISDA CDS U.S. High Yield Index ended at 334bps.
The ten companies tracked in the S&P/ISDA CDS U.S. Energy Select 10 Index are:
- Anadarko Petroleum Corp.
- Apache Corp
- Chesapeake Energy Corp.
- ConocoPhillips
- Devon Energy Corporation
- Forest Oil Corp.
- Halliburton Company
- Peabody Energy Corporation
- Valero Energy Corp.
- Williams Companies, Inc. (The)
This article was written by J.R. Rieger, global head of fixed income, S&P Dow Jones Indices.
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