tyb
check the pb and see if it got fully loaded
"Fallen Angel" Day Arrives: $140 Billion In Energy Debt At Risk Of Imminent Downgrade To Junk
BBB bonds now make up nearly 50% of the index of investment grade bonds, an all time high. BBB bonds are only one notch above high yield, and are at the greatest risk of becoming fallen angels, that is bonds that were investment grade when issued, but subsequently get downgraded to below investment grade, or what is known these days as high yield. It then points out that investors have never been more at risk of capital loss if yields were to rise. In addition, it notes volatility targeting investors will mechanically increase leverage as volatility drops, with variable annuities investors having little flexibility to deviate from target volatility.
However, despite a few close scares, and the downgrades of some massive IG names to junk such as Ford and more recently, Macy's, there never emerged a clear catalyst that would trigger a wholesale downgrade of IG names to junk, especially since the Fed ending its monetary tightening in late 2018 and unleashed another rate cut cycle coupled with QE4 in 2019 sent IG and HY yields and spreads to record lows, even though as Morgan Stanley pointed out no less than 55% of BBB-rated investment grade bonds, would have a junk rating based on leverage alone.
Here is what we know: as of this moment, over $140 billion of debt issued by independent oil and gas producers, oilfield services providers and integrated energy companies has triple-B credit ratings from Moody's or S&P and is now at risk of falling to junk status.
In the 2015-16 downturn, both credit-rating companies lowered their commodity-price expectations, driving a wave of rating cuts. Occidental Petroleum, which yesterday slashed its dividend for the first time in almost two decades to preserve cash flow, is the largest issuer, with almost $35 billion of debt and credit ratings of Baa3/BBB. As further shown in the table below, other significant potential fallen angels include Canadian Natural Resources (Baa2/BBB+), Noble Energy (Baa3/BBB), Apache Corp. (Baa3/BBB) and Concho Resources (Baa3/BBB-). A number of companies already have one foot in the high yield camp including Devon Energy (Ba1/BBB-), Hess (Ba1/BBB-) and Continental Resources (Ba1/BBB-). bonds issued by several oil and natural gas producers with triple-B credit ratings have already started to trade with high yield-like credit spreads. In the case of Ovintiv and Continental Resources, which have crossover ratings of Ba1 at Moody's and triple-B from S&P and Fitch, spreads on their unsecured bonds have climbed to about 800 bps, close to the 1,000 bp-plus level, which typically qualifies as distressed. Spreads on Occidental Petroleum notes due in 2029 have climbed north of 700 bps, while Devon Energy and Noble Energy benchmark bond spreads have jumped to 630 bps and 540 bps, respectively. In January, none of the bonds had a credit spread above 300 bps.
Putting those spread in context, the FT noted that almost 12% of the $936BN of bonds issued by US oil and gas companies are were trading on Monday with a yield more than 10% points above Treasuries — a commonly used definition of distress. Among junk-rated borrowers, issuers with ratings below triple-B, which account for $175bn of the total, the proportion of debt in distressed territory has risen to almost two-thirds. Ok, some may counter, $140BN is a lot but there is just over $3 trillion in total BBB rated credits. This is hardly a disaster.
The problem is that the threat of imminent downgrade to junk is not only in the E&P space: once it strikes, it will certainly affect the midstream as well.
In other words, between just the oil producers and the midstream cos, some $360BN is at risk of near-term downgrade to junk. Assuming that's all there is, it would increase the size of the $1.2 trillion junk bond market by nearly 30%, resulting in an unprecedented selloff in an asset class that has become an anchor to yield-starved speculators who will be forced to liquidate most if not all of their credit exposure, which would then also drag down the rest of the IG space, resulting in a catastrophic crash in the credit market.
All of this, of course, assumes that the rest of the $3 trillion in Investment Grade names are not downgraded. Alas, even if it is a modest portion, it would still be enough to create a cascade that shuts down the US credit market first, and then spills over to every capital market in the world.
https://www.zerohedge.com/markets/fallen-angel-day-arrives-140-billion-energy-debt-risk-imminent-downgrade-junk
this is a question of allowing consequences..do they allow this or not?-they did not allow consequences for a very long time.
This is an echo chamber waiting to hit. See Deutsche Bank… all of them really.
Kuwaiti AF KAF3226 C-17 coming down the road from Prestwick Int'l, Scotland and PAT009 USMC C-560 out from Davison Field and SW
Former Morgan Stanley Trader Cleared of Mismarking, Lawyers Say
Scott Eisner, a trader who was terminated by Morgan Stanley after multi-million-dollar losses in a portfolio he handled, was cleared of wrongdoing in connection with alleged mismarking of securities, his lawyers said.
Morgan Stanley’s foreign-exchange options business was hit by losses last year on trades tied to the Turkish lira, a portfolio run day-to-day by London-based Eisner. The securities firm subsequently started a probe to examine whether some traders improperly valued transactions and concealed losses linked to those trades, leading to the suspension or ouster of some of them, Bloomberg has previously reported.
Eisner wasn’t “material” to Morgan Stanley’s investigation into mismarking of currency options, according to a letter to Bloomberg from law firm Schillings International LLP, which represents Eisner. The law firm declined to disclose why Morgan Stanley terminated the trader’s employment last year, but said the bank’s “material concerns” relating to the mismarking probe at the unit didn’t involve Eisner.
Morgan Stanley declined to comment. Morgan Stanley’s FX options desk wagered and lost money on the Turkish lira after mounting political tensions in the country whipsawed investors in 2018 and the early part of 2019. Morgan Stanley lost about $100 million in the third quarter of last year on FX options linked to currencies in Central and Eastern Europe, the Middle East and Africa, and then dropped another $70 million in the final period, Bloomberg has reported.
Morgan Stanley has since overhauled its leadership ranks at the currencies business.
The New York-based bank last month named Samer Oweida, global head of FX sales, and Craig Abruzzo, who leads futures and derivatives clearing in the equities business, to head the currency-trading division. Both will report to Jakob Horder, head of the macro division that houses FX trading, the firm has said.
https://www.bloomberg.com//news/articles/2020-03-11/former-morgan-stanley-trader-cleared-of-mismarking-lawyers-say
They had better be going upstairs or across town if they are letting this one go.
from March 2019
Turkish watchdogs to probe JP Morgan after lira plunge
Turkey’s banking watchdog said it had launched an investigation into JP Morgan and other banks over complaints it received after the lira plunged more than 4 percent and the main share index fell sharply on Friday.
https://www.reuters.com/article/us-turkey-banks-idUSKCN1R40OS
I'll take a 458 competizione mostly because it adds up to 17
DDFI5899 USMC C-560 out from NASJRB New Orleans and west to Lake Charles then NE.
This was the same call sign that went in to Panama on March 3rd from San Jose, Costa Rica
chek't Justice quints
yes I know what's in it. That's why it would be far out. Eventually that complex wuill go tits up once they are forced to downgrade..take some time but the piper is calling.
they never play by the rules…only we have to. That's how we got here the HYG/Spy dislocation that started right after the $29t stealth bailout. That fucker going to implode at some point. It's Blackrock too…enough said.
margin consequences are for retail like us…not them.