Moody’s Investors Services warns investors hoping to cash in on commodity-related bonds to prepare for losses, after oil, gas, mining, and metal sectors all took major financial hits through 2015, Market Watch reports.
Prices for high-yield and “junk” bonds issued by fossil-fuel and mineral extractors are at a multi-year low, the international bond researcher said in a recent report. “The sheer volume of commodity-related debt poses challenges,” said Mariarosa Verde, lead author of the report. “Losses will be substantial for many investors.”
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Oil and gas bonds were popular during the fracking boom in the first half of this decade, Market Watch explains. But continued low prices for oil, and a string of fossil-fuel sector bankruptcies and Chapter 11 filings, have raised investors’ jitters, making them increasingly unattractive. As Daniel Gates, a Moody’s managing director, observed, “diminishing liquidity and restricted access to capital markets are now pushing more firms closer to default.”
Mining and fossil fuel issuers represent only 14% of Moody’s non-finance corporate ratings, but accounted for 36% of downgrades and 48% of defaults in October—a trend that Moody’s expects will continue through 2016.
