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Energy Felt The Heat

28 November 2014 by lberuti

This is what you get when oil tumbles 8% on Black Friday. On the one hand, retailers and delivery services enjoyed a good session as shoppers appear to go to stores and online to make the most of available deals. But on the other hands, anything related to oil and directly impacted by the falling price of crude got a beating. Higher beta names were of course the most impacted with RIG’s ( Transocean LTD ) 5 year CDS 67bps wider at 533bps and GALPPL’s ( Galp Energia SGPS SA ) 17bps wider at 258bps for instance. But even very low beta companies felt the heat. STL’s ( Statoil ) 5 year risk premium was 5bps wider at 42.5bps, TOTAL’s ( Total SA ) was 1.5bps wider at 42.5, VLO’s ( Valero Energy Corporation ) was 8.5bps wider at 95.5bps. The effects were felt on both sides of the Atlantic, but as CDX IG includes more high-beta energy related names than iTraxx Main, that led to an underperformance of the US benchmark compared to its European equivalent. CDX IG now trades 3.5bps wider than iTraxx Main. Knowing that this actually represents only half the difference between their respective fair values, that leaves some room for further underperformance of the US credit index.