Here's The Real Reason High Yield Energy Credit Risk Collapsed This Morning

A few market participants have noticed that the US High Yield Energy sector's credit risk collapsed 170bps this morning according to Bloomberg's data. This is the biggest plunge (rally) in the index of "incredibly risky stuff" on record and in the face of new cycle lows in crude, borrowing bases contracting, and rig counts crashing, this seemed odd... well here is why the index collapsed (spoiler alert - do not get excited).

So this happened and everyone rejoiced...

But here is why...

So what we see here is Rex Energy - trading at 6,901bps saw its risk drop 760bps and Mongolian Mining Corp trading at an epic 14,197bps saw its risk drop 413bps... and that compressed the index OAS overall.

In other words - the absolute riskiest of the risky crap end of the spectrum of verging on default energy firms have seen risk narrow (likely model valuations as opposed to actual transactions) and the headline index spread collapses.

So don't buy Energy stocks with both hands and feet just yet... it's just an index aberration.

Comments

[StackShinyStuff]

Because Gartman said buy it?

Edit:  I mean sell, I should learn to read 

[Dead Canary]

Buy.

No, sell.

Buy..... I'm so confused.

I know. I'll just send all my money to Gartman. Go broke now and save myself the aggravation of going broke slowly.

[roadhazard]

OK.

[russwinter]

Out last night from China, will buy majority of skinny inventories left in LME. Copper in warehouse is on fumes: 

http://www.kitconet.com/charts/metals/base/lme-warehouse-copper-6m-Large...

BEIJING (Scrap Monster): According to latest reports, the Chinese State Reserve Bureau (SRB) plans to buy domestic copper and nickel on the backdrop of the sharp fall in prices of these commodities recently. The state-owned commodity stockpile has stated that it will buy around 300,000 tonnes of copper and 150,000 tonnes of nickel.

It must be noted that the State Reserve Bureau had made inquiries about the global supply conditions and prevailing premiums of the two commodities to select domestic firms during last month. Sources indicate that the stockpiler prefers to make the purchases from domestic producers unless there happens to be a big difference in international prices. The imports will be done through state-owned firms. However, the plans are yet to be finalized, sources close to the Bureau noted.

The proposed purchase quantity will be equivalent to two-thirds of copper stocks in the London Metal Exchange (LME). Also, the quantity of nickel purchase would equate to almost 50% of the LME nickel stocks.

[Dr. Engali]

So does MRO survive or not?

[Janet Shalom Be...]

At what point does the Fed add distressed oil company bonds to it's balance sheet and print trillions to hand to them in exchange?

But don't worry, they will hold the bonds to maturity and then re-invest as they mature.  None of this could ever cause inflation to rise.

[Kefeer]

When commodities do rise; what will happen to the rest who aren't poor enough yet?

[NEOSERF]

Probably the junk is looking to merge with itself because as we all know -2 x -2 = 4....

[bnbdnb]

See what you did what that word "collapsed" today?

[U4 eee aaa]

Indexes are such two faced liars.