Oil Wipe-Out Bring Gloomy Sentiment to Credit Markets

 

(Bloomberg) -- Just as credit markets were revving up, another historic wipe-out in crude oil prices has hit investor sentiment. Dollar bonds of oil-related companies dropped in Asia and hurt the broader regional credit market, after U.S.crude futures plunged below zero on Monday for the first time. It’s another piece of bad news for borrowers in Asia, where bond sales have barely started to catch up to booming issuance in theU.S. and Europe. “The real issue here is the impact on investor psyche of such an unprecedented event,” said Charles Macgregor, head of Asia at Lucror Analytics. “This could lead to heightened risk aversion for an extended period of time and will weigh heavily on corporate credit.” The oil price plunge is a reminder that with the global economy sagging due to the coronavirus pandemic, more unprecedented shocks may hit financial markets. Adding to the risk-off mood on Tuesday, news came out that the U.S. is monitoring information surrounding the health of North Korea’s dictator.

Asia

*Yield premiums on Asia’s investment-grade oil-related dollar bonds widened by 5-10 basis points on Tuesday after the crude price tumble, according to traders. Prices of junk-rated oil names in the region slid 2-5 cents on the dollar, traders said.

*Oil and metals conglomerate Vedanta Resources Ltd.’s 2022 note sank 4.8 cents on the dollar, the most in a month, to 40.25 cents, Bloomberg-compiled prices show

*While the energy market slump is detrimental to oil producers in Asia, if anything the region may be less affected than other parts of the world. Most Asian countries are oil importers, and most of the region’s oil producers in the credit market are backed up by their states, said Jenny Zeng, co-head of Asia- Pacific fixed income at AllianceBernstein in Hong Kong

*The cost of insuring South Korean sovereign bonds against non- payment increased slightly on news that the U.S. received information that North Korean leader Kim Jong Un was in critical condition after undergoing cardiovascular surgery last week

*Virgin Australia Holdings Ltd. became Asia’s first airline to collapse after the coronavirus outbreak; administrators at Deloitte took control of the Brisbane-based carrier and aim to restructure the business and find new owners within months



U.S.

*Railroad company Kansas City Southern and packaging company Sonoco Products Co., joined Campbell Soup Co. and Cargill Inc. in the investment-grade market Monday.

*Nationwide Mutual Insurance Co. postponed its 40-year bond offering, citing market conditions

*Netflix Inc., one of the few companies that has benefited from global lockdowns amid the coronavirus pandemic, may look to tap into the market’s bullish outlook by raising more cash in the junk-bond market



Europe

*JCDecaux SA offered 1 billion euros ($1.08 billion) of notes across two tranches, one of 10 borrowers to sell new bonds on Monday for a total of nearly 12 billion euros.

*Borrowing costs for Europe’s higher-rated firms have ticked back up to 200 basis points after breaching that level in mid-March for the first time since 2012

*The debt of Deutsche Bank AG, Abertis Infraestructuras SA and UniCredit SpA is most at risk of cuts to junk because large portions of it are already on negative outlook, according to Bloomberg Intelligence research

By Denise Wee and Finbarr Flynn