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High yield energy bonds have, for the moment, run out of gas.
US junk energy bonds suffered their first losing month in more than a year, returning minus 0.4 per cent in March as crude prices slid into correction.
The decline is the first for Bank of America’s high yield energy index since February 2016 and follows a stunning 75 per cent rally for the sector in the one year since that nadir was touched.
Energy companies have once again come under pressure as oil prices have slipped and crude production has rebounded. While dozens of bonds issued by the weakest oil and gas groups have been removed from the index — often following default — investors are scrutinising valuations of the companies that remain.
US crude oil production has grown by half a million barrels a day from its nadir last summer, a rebound that is weighing on prices and undermining Opec’s attempts to reduce production and stabilise the market.
Brent crude, the international benchmark, is down 9 per cent from a January high to $53.17 a barrel. The benchmark briefly dipped below $50 a barrel in late March after data showed a buildup in US crude inventories.
The average US junk energy bond traded hands last week at 98 cents on the dollar, up from 52 cents at its low last February. Yields on the bonds, which fall as bond prices rise, have declined to 6.35 per cent from 17.93 per cent over the same period.