The last two weeks has seen a pronounced rally across risk markets with significant spread compression. The lockdown releases are combining with a reappraisal of default expectations.
- Oil has continued tracking higher with supply and demand support. On the supply side Saudi Arabia is selling it at a higher price than previously and on the demand side the short-term depression of last month seems to have passed, possibly as more and more countries increase their strategic reserves. Natural gas prices have also rebounded. This means the energy sector has been a remarkable outperformer over the last month, rebounding 13%. Gas prices were depressed prior to the pandemic and are now well above those levels so many gas producers’ bonds are trading significantly up on the year. We have been adding some of the recent fallen angels in the energy sector as we think these larger companies have an array of options to delay default, even in a ‘lower for longer’ oil price environment.