Energy Junk Bonds Lead 2023, But Upside Limited
US junk energy is leading the market this year, but with spreads at their tightest since 2007, there's limited room for further gains. Leverage ratios have hit a low, and increased shareholder activity and potential M&A pose risks to debt.
While oil prices have dipped from 4Q highs, anything above $70 is still beneficial for high-yield producers. However, much of the profits may go to equity investors in the form of dividends and buybacks, rather than debt holders.
Despite strong balance sheets and a majority of higher-quality bonds in the index, energy debt's outperformance is more dependent on other sectors performing poorly rather than a sustained rally. $S&P 500 Index(.SPX.US$ $Dow Jones Industrial Average(.DJI.US$ $Nasdaq Composite Index(.IXIC.US$
While oil prices have dipped from 4Q highs, anything above $70 is still beneficial for high-yield producers. However, much of the profits may go to equity investors in the form of dividends and buybacks, rather than debt holders.
Despite strong balance sheets and a majority of higher-quality bonds in the index, energy debt's outperformance is more dependent on other sectors performing poorly rather than a sustained rally. $S&P 500 Index(.SPX.US$ $Dow Jones Industrial Average(.DJI.US$ $Nasdaq Composite Index(.IXIC.US$
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