The Daily Update - US oil company issuance, NFP

It would appear that US domestic energy companies are issuing massive amounts of debt. However, unlike in previous years where oil was above $80 per barrel (until 2014) and proceeds from debt were used to expand production and fund ambitious growth strategies, companies are instead refinancing debt.

High yield US energy debt issued during September totalled $7bn which is about 31% of all high yield debt issued in the US during the month. In the energy sector, $15.2bn worth of investment grade debt was issued via 19 deals. High yield energy issuance has been swallowed up by yield-starved investors with even the lowest of rated junk bonds welcomed. This has caused junk rated bonds to tighten to three- year lows in terms of spreads over US Treasury bonds.

However, according to Standard and Poor’s, US oil and gas companies face $71bn of maturing bonds in 2019. Thus the issuance looks to continue whilst oil remains around $50 a barrel and the sector takes advantage of the current excess liquidity available to fund even the more risky of issuers. We remain very cautious of high yield, particularly in the US energy sector which has historically been a sector content to live with negative cash flows in the name of growth. Unfortunately, this looks to us like a bubble which continues to inflate, but is very likely to result in a rather large BANG.

September economic data is going to be very difficult to forecast, and even once released, explained; as there are various ideas on how the hurricanes and storms which wreaked havoc during the month is going to affect the economic indicators. Today we had September’s non-farm payrolls which fell by 33,000 with the two month payroll revision at -38k and the unemployment rate down 0.2% to 4.2%. The inflation indicators, average hourly earnings were up 0.5% on the month which is 2.9% yoy and the average weekly hours was at 34.4.

As mentioned above expectations were in a broad range and next month we could see massive revisions so the market impact was limited with the 10-year Treasury moving lower by just 5/32nds at the time of writing ahead of the US long weekend. Happy Columbus Day for Monday, too all.

Please read this important information before proceeding. It contains legal and regulatory notices relevant to the information on this site.

This website provides information about Stratton Street Capital LLP ("Stratton Street"). Stratton Street is authorised and regulated by the UK's Financial Conduct Authority. The content of this website has been prepared by Stratton Street from its records and is believed to be accurate but we do not accept any liability or responsibility in respect of the information of any views expressed herein. The information, material and content provided in the pages of this website may be changed at any time by us. Information on this website may be out of date and may not be updated or removed.

The website is provided for the main purpose of providing generic information on Stratton Street and on our investment philosophy for the use of financial professionals in the United Kingdom that qualify as Professional Clients or Eligible Counterparties under the rules of the United Kingdom Financial Conduct Authority (the "FCA"). The information in this website is not intended for the use of and should not be relied on by any person who would qualify as a Retail Client. Products and services referred to on this website are offered only at times when, and in jurisdictions where, they may be lawfully offered. The information on this website is not directed to any person in the United States. The provision of the information on this website does not constitute an offer to purchase securities to any person in the United States (other than a professional fiduciary acting for the account of a non-U.S person) or to any U.S. person as such term is defined under the Securities Act of 1933, as amended.

The website is not intended to offer investors the opportunity to invest in any Alternative Investment Fund ("AIF") product. The AIFs managed by Stratton Street are not being marketed in the European Economic Area ("EEA") and any eligible potential investor from the EEA who wishes to obtain information on the AIFs will only be provided with materials upon receipt by Stratton Street of an appropriate reverse solicitation request in accordance with the requirements of the EU Alternative Investment Fund Managers Directive ("AIFMD") and national law in their home jurisdiction. By proceeding you confirm that you are not accessing this website in the context of a potential investment by an EEA investor in the AIFs managed by Stratton Street and that you have read, understood and agree to these terms.

No information contained in this website should be deemed to constitute the provision of financial, investment or other professional advice in any way. The website should not be relied upon as including sufficient information to support any investment decision. If you are in doubt as to the appropriate course of action we recommend that you consult your own independent financial adviser, stockbroker, solicitor, accountant or other professional adviser. Past performance is not necessarily a guide to the future. The value of investments and the income from them may go down as well as up. An application for any investment or service referred to on this site may only be made on the basis of the offer document, key features, prospectus or other applicable terms relating to the specific investment or service.

Where we provide hypertext links to other locations on the Internet, we do so for information purposes only. We are not responsible for the content of any other websites or pages linked to or linking to this website. We have not verified the content of any such websites. Such websites may contain products and services that are not authorised in your jurisdiction. Following links to any other websites or pages shall be at your own risk and we shall not be responsible or liable for any damages or in other way in connection with linking.

By using this site, you should be aware that we may disclose any information that we hold about you to any regulatory authority to which we are subject, or to any person legally empowered to require such information.

This website uses cookies to improve user experience, by clicking the "I Accept" button below means you consent to the use of cookies on our website.