Energy bonds demise ‘exaggerated’

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Phil Milburn, co-manager of the Kames High Yield Bond and High Yield Global Bond funds, has said that there are significant opportunities for fixed income investors in the energy sector following the sharp fall in the price of oil.

Contrary to warnings about the effects on bonds, Milburn said that many higher rated companies have seen sold off too much; just a tenth of the energy bonds in the Barclays Global High Yield Index are rated CCC and below, and there are many rated B that look attractive on a long term view, he added.

“The lowest-rated independent producers and the oil services companies are the most vulnerable, but rumours of the sector’s complete demise are greatly exaggerated.”

Oil below $60 for an extended period would result in defaults, but these would be “more than manageable”, and losses even in the worst case scenario are unlikely to be more than $100bn, Milburn estimates.

“While one should not get over-exuberant about the potential for mid to high single digit returns, I am pleased that there has been more dispersion in high yield bond returns since September, as it offers active managers like us the chance to add some alpha.”


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