The decline in the energy sector has impacted the total market value of bonds in the S&P 500 Energy Corporate Bond Index by over $25 billion since July 31st. The index has recorded a total return of -8.05% during these 5 months and -8.61% year-to-date.
What is even more worrisome is the cost of buying default protection on debt of issuers in the S&P/ISDA CDS U.S. Energy Select 10 Index has doubled during that time. This indicates an increase in defaults is expected in this sector.
Table 1: Select indices and year-to-date returns:
Chart 1: Select Credit Default Swap Indices
Note: The S&P/ISDA U.S. 150 Credit Spread Index tracks the largest debt issuers in the S&P 500 Index. The S&P/ISDA U.S. Energy Select 10 Index tracks the largest debt issuers of energy companies with consistent credit default swap spread data.
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