Good morning. I'm Amrith Ramkumar, taking you through today's markets news. We're watching stock futures following a late-day slide
that sent the S&P 500 to its fourth consecutive drop. The decline
came with a dip in Treasury yields that weighed on financial stocks and a
fall in trade-sensitive assets.
Those market swings came after a widely-expected interest-rate increase
and projections for more gradual hikes ahead. Now, we're eyeing a host
of economic data points including durable goods and jobless claims.
And bond market reporter Matt Wirz dives into the recent outperformance of high-yield bonds in the energy sector.
Markets in a Minute
Global stocks edged lower Thursday, as investors parsed the outcome of
the Fed's rate rise and awaited budget developments in Italy.
Debt from the energy companies that triggered a junk-bond rout three
years ago is surging back on a rally in oil and natural gas prices.
The oil patch accounted for about 29% of all high-yield bonds
sold so far this year and energy-sector debt has outperformed debt in
Case in point, Chesapeake Energy issued $1.25 billion of new bonds
Wednesday to refinance more expensive debt it borrowed in 2016, and
credit ratings firm Moody’s Investors Service said it will likely
upgrade the company's rating to single-B from Triple-C. The new bonds
were the most actively traded corporate bonds in the U.S. with $375
million changing hands, according to MarketAxess.
That’s a far cry from the existential crisis Chesapeake weathered in late 2015, when stock and bond investors were betting the company would be forced to default.
Oil prices are climbing—Brent
crude hit an almost four-year high of $81.87 earlier this week—on
expectations that coming sanctions on Iran will squeeze supply.
Natural-gas prices are also on the rise because of low inventory levels.
Those dynamics are likely to keep pushing energy-company bonds higher
at least through the end of the year, said Jeffery Elswick, head of
fixed income investments at Frost Investment Advisors. Energy companies
account for about one third of the high-yield bonds Frost owns in its
flagship $2.9 billion bond fund, up from 10% normally.
And energy bonds have risen about 3.25% this year, compared to the 2.5%
average for all high-yield bonds, he said. Junk bonds make up about 12%
of the fund’s total investments.
Companies in the energy and natural resources industries are
capitalizing on investor enthusiasm and have issued $42.5 billion of new
high-yield bonds this year, according to data from Dealogic.
That’s only 2% more than they raised last year but compares to a 26%
decline in overall junk-bond sales over the same period as rising
interest rates, which push bond prices down, dampen new issuance in most
U.S. corporate bonds.
The S&P 500 financials sector closed down 1.3% Wednesday, its
largest one-day drop since mid-July. The group has fallen in four
consecutive sessions since hitting a six-month high last week.
Wednesday’s decision marks the first time
that the Fed has raised rates above 2% since a series of rate cuts that
followed the government’s intervention in March 2008 to prevent the
liquidation of Bear Stearns.
On this day in 1985, Philip Morris agreed to buy General Foods for
$120 per share, or $5.75 billion, the largest takeover on record outside
the oil industry. Many Philip Morris shareholders were angry that the
tobacco company was diversifying into a slow-growing business like