Borrowing costs for high-yield companies rose to the highest in almost three years as plunging commodity prices makes lending to energy companies more risky.
Investors demanded an average yield of 7.39 percent on Thursday to hold securities sold by junk-rated firms globally, the most since October 2012, according to Bank of America Merrill Lynch index data. The Bloomberg Commodity Index, which tracks the value of 22 raw materials including metals, oil and crops, fell 0.93 percent on Friday to the lowest level in more than 13 years.
Energy companies, which comprise about 14 percent of the global high-yield index, are wrestling with a more than 30 percent slide in the price of Brent crude since May amid a supply glut. The slump has helped widen the difference between borrowing costs for junk and highly rated companies to the most since December, the data show, as speculative-grade firms lack the financial buffers to withstand the drop in revenue.
“There’s a real risk of energy companies getting into serious trouble in high yield,” said David Newman, head of high yield at Rogge Global Partners in London, which manages more than $50 billion.