Maybe a 24% Yield Was Right for Junk Energy Bonds

At one point last week, traders who bought high-yield energy bonds during the darkest days of the market’s sell-off had to be nothing short of giddy at their good fortune. In just three weeks, from March 24 to April 14, an index of junk debt from companies in oil field services, midstream and refining had surged more than 30% — a staggering rally that if stretched out over a year would translate to a 10,500% windfall.

Markets rarely move in a straight line, of course, and indeed the gains flatlined toward the end of the week. Still, those investors who snapped up speculative-grade energy bonds at 24% yields were sitting on a tidy profit in the short term and amassed a seemingly large buffer for losses in the longer run. As of Friday, the average yield on the Bloomberg Barclays High Yield Energy Total Return Index tumbled almost 900 basis points from that peak to about 15%.