Volatile Markets Reveal Interesting Credit Opportunities in Energy

OIL ROSE ALMOST 50% from the end of October 2020 through mid-January.

STEVEN GEE, BRIDGETT GOEBEL, and MONIKA ZNOSKO

During this period of stronger prices—which were buoyed by Saudi Arabia’s announcement of cuts in near-term production—energy companies rallied in both the equity and credit markets. Finding interesting opportunities in energy credits while the spreads on sector names remain wider than usual may be a focus for investors in 2021.

To see the trends that played out in markets over the past six months, you can use the Line Chart (GP) function to graph the prices of oil (CL1 ) and the S&P 500 Energy Index (S5ENRS ), and the option-adjusted spread to Treasuries of the Bloomberg Barclays Investment Grade: Energy Statistics Index (I00388 ), which is a subindex for energy issuers (FIG. 1). Since the end of October, as oil prices rose, equity prices followed and credit spreads narrowed dramatically.

TO ANALYZE CREDIT SPREADS of members of the bond index, run {FIW } for the Fixed Income Worksheet, the most robust credit relative-value workflow on the terminal. For users in North America, FIW by default loads the Bloomberg Barclays US Statistical Index (LBUSSTAT ). To load the energy subindex, click into the amber field in the upper left corner of the screen and select Browse … . In the window that appears, click on Indices, type “I00388” in the Ticker field, and press . Then click on the index to select it.

(A couple of pro tips: Whether you load the energy subindex or leave the entire LBUSSTAT index loaded and use the Facets panel to drill down to the energy sector by selecting it under BClass Level 3, you’ll see the same bonds—554 instruments as of mid- January. FIW also lets you analyze lists of bonds from sources such as SRCH, AIM, TOMS, and PORT portfolios. This article is the 11th in a continuing series on FIW. For links to the others, run {NSN QMZHUIT1UM0W }.)