Running On Fumes: Energy Sector Defaults and Junk Bond ETFs | Page 2 of 2 | ETF Trends

Meanwhile, U.S. junk-rated energy bonds show a yield of 11%, a little off its July 2009 high and almost double its 5.9% rate a year ago. The sudden uptick in yield reflect the lack of investment confidence that the bonds will be repaid in full – yields and bond prices have an inverse relationship, so the rising yield has corresponded with falling prices.

The broad junk bond ETFs are also trading at some elevated yields after the recent selling pressure. For instance, HYG has a 6.66% 30-day SEC yield, JNK has a 6.62% 30-day SEC yield, PHB has a 4.95% 30-day SEC yield and HYLD has a 11.06% 30-day SEC yield.

Many below-investment-grade oil companies have been able to stay afloat during the oil price falloff as investors continued to provide funding. However, lenders are beginning to shy away from the energy sector. U.S. banking regulators also recently told banks that a large number of loans to energy producers are substandard, a move that could force lenders to turn down further loans to energy players.

Andrew Calder, a partner in Kirkland & Ellis LLP, said that producers are left with fewer options available as the downturn persists.

“It’s a lot easier to get management teams to meet with your restructuring partners or financial advisers,” Calder told the WSJ.

For more information on the speculative-grade debt market, visit our junk bonds category.

Max Chen contributed to this article.