Energy bonds are back
Oil and gas prices are rising again after a COVID-19 fall
February 24, 2022
As oil and gas prices bounce back from the pandemic, investors are grasping onto the opportunity to get in on energy bonds now that companies are able to generate cash again. In 2020, JPMorgan reported that energy debt had accounted for around $47 billion of high-yield defaults. Financially weaker companies had either gone bankrupt or restructured their debt, leaving room for higher quality companies to take over the market, per the Financial Times.
Now that these bigger companies are recovering, they are working towards reducing their greenhouse gas emissions from operations. This is an appeal to more investors that will look at companies with good credit that are also looking to improve themselves environmentally.
More governments and businesses are investing in low-carbon energy sources, and even as they continue to do so, fossil fuels will still be the energy field’s frontrunner. The transition to renewable energy has numerous opponents, most notably those that are seeking increased investment yields. As prices on oil and gas increase, energy companies have been able to allocate their debt to reduce their costs, which makes them more attractive to investors.
These price increases also allow these companies to invest in processes that result in lower carbon emissions. Ironically, many of these companies are falling into ESGs that open them up to an even bigger investment pool.