3rd October 2016

Arminius monitors bond defaults on a global basis, not only because of the disruption which they cause to financial markets and the banking sector, but also because of the lasting damage which they inflict on the real economy. Chart 1 below shows how bond defaults have risen sharply in the last eighteen months.

Most of the increase in defaults so far is a direct consequence of the halving of oil prices in 2014. Many US shale oil producers had funded their development expenditures by issuing junk bonds when oil was over USD$100 per barrel and with oil at USD$50 they no longer had sufficient cash flow to meet their obligations. The red dots in the chart below represent US shale oil producers and they account for a majority of the defaults in 2015 and 2016 – but not all of them… [see more]