Falling Oil Prices Weigh on Corporate Bond Market

The commodities futures market has priced in the Federal Reserve interest rate hike as a foregone conclusion

Dave Sekera, CFA 14 March, 2017 | 2:20PM

Oil prices have dropped by approximately $5 per barrel - almost 10% - since the beginning of March, with most of the price drop occurring last week. After suffering deep losses in the latter half of 2015 and early 2016, when oil prices dropped to as low as $30 per barrel, investors in corporate bonds have since kept a close eye on the price of oil.

As the price of oil has sunk, corporate credit spreads in the energy sector have begun to widen out, pulling the overall index wider as well. Last week, the Morningstar Corporate Bond Index, our proxy for the investment-grade bond market, widened 5 basis points to +123, and the Bank of America Merrill Lynch High Yield Master Index widened 29 basis points to +389. The energy sector of the Morningstar Corporate Bond Index widened 8 basis points, and the energy sector of the high-yield index widened 43 basis points.

The energy sector of the Morningstar Corporate Bond Index widened 8 basis points

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About Author

Dave Sekera, CFA  is a senior securities analyst with Morningstar.

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