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Junk Bonds Finally Capitulate to Lower Oil Price Environment [Chart]

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Junk Bonds Finally Capitulate to Lower Oil Price Environment [Chart]

Junk Bonds Finally Capitulate to Lower Oil Price Environment [Chart]

High-yield bond ETFs are down double-digits since the summer.

The Chart of the Week is a weekly Visual Capitalist feature on Fridays.

Over the month of December, the market for high-yield bonds (also known as junk bonds) had a mini-meltdown that’s raised some eyebrows.

Junk bonds, which are non-investment grade debt instruments that are issued by companies with poor credit ratings, are both high-risk and high-reward. If the companies don’t default on their payments, the bonds pay a nice premium to the investor. In fact, the risk and return on junk bonds is generally comparable with that of stocks.

However, sometimes these companies can and will default on their debt obligations, and here’s where the risk comes in. This time, it is the energy sector that is the culprit.

When low oil prices hit last year, many fringe oil and gas producers believed that it would be possible to wait out the market for better prices. Some of these companies even issued risky junk bonds to raise capital to sustain operations until better times.

The recent action in oil and commodity markets have made it clear that oil prices could be low for a long time. Now, these fringe shale producers that have been holding on for better times may get a different type of medicine.

Standard & Poor’s recently warned that a stunning 50% of energy junk bonds are “distressed,” meaning they are at risk of default. That’s about a total of $180 billion distressed debt, which is the highest level since the Financial Crisis.

Investors began pulling money out of the credit markets fast. Last week, investors pulled a record $5.1 billion out of mutual funds and ETFs investing in junk bonds. Investment-grade bond and junk bond yields are now at their highest since 2012.

On top of that, several funds announced they would be locking out investors from withdrawing their funds. Third Avenue has blocked investors from retrieving money from its credit fund, Stone Lion suspended redemptions in its credit hedge funds, and Lucidus Capital Partners liquidated its holdings to try and get money back to investors.

What does this mean for ordinary investors?

Jeffrey Gundlach, the “Bond King”, talked about this in his latest presentation for DoubleLine Capital:

I’m sure many people on the call have never seen the Fed raise rates. And I’ve got a simple message for you: It’s a different world when the Fed is raising interest rates. Everybody needs to unwind trades at the same time, and it is a completely different environment for the market.

In 2016 we will be sailing into some uncharted territory.

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Energy

Charted: Global Uranium Reserves, by Country

We visualize the distribution of the world’s uranium reserves by country, with 3 countries accounting for more than half of total reserves.

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A cropped chart visualizing the distribution of the global uranium reserves, by country.

Charted: Global Uranium Reserves, by Country

This was originally posted on our Voronoi app. Download the app for free on iOS or Android and discover incredible data-driven charts from a variety of trusted sources.

There can be a tendency to believe that uranium deposits are scarce from the critical role it plays in generating nuclear energy, along with all the costs and consequences related to the field.

But uranium is actually fairly plentiful: it’s more abundant than gold and silver, for example, and about as present as tin in the Earth’s crust.

We visualize the distribution of the world’s uranium resources by country, as of 2021. Figures come from the World Nuclear Association, last updated on August 2023.

Ranked: Uranium Reserves By Country (2021)

Australia, Kazakhstan, and Canada have the largest shares of available uranium resources—accounting for more than 50% of total global reserves.

But within these three, Australia is the clear standout, with more than 1.7 million tonnes of uranium discovered (28% of the world’s reserves) currently. Its Olympic Dam mine, located about 600 kilometers north of Adelaide, is the the largest single deposit of uranium in the world—and also, interestingly, the fourth largest copper deposit.

Despite this, Australia is only the fourth biggest uranium producer currently, and ranks fifth for all-time uranium production.

CountryShare of Global
Reserves
Uranium Reserves (Tonnes)
🇦🇺 Australia28%1.7M
🇰🇿 Kazakhstan13%815K
🇨🇦 Canada10%589K
🇷🇺 Russia8%481K
🇳🇦 Namibia8%470K
🇿🇦 South Africa5%321K
🇧🇷 Brazil5%311K
🇳🇪 Niger5%277K
🇨🇳 China4%224K
🇲🇳 Mongolia2%145K
🇺🇿 Uzbekistan2%131K
🇺🇦 Ukraine2%107K
🌍 Rest of World9%524K
Total100%6M

Figures are rounded.

Outside the top three, Russia and Namibia both have roughly the same amount of uranium reserves: about 8% each, which works out to roughly 470,000 tonnes.

South Africa, Brazil, and Niger all have 5% each of the world’s total deposits as well.

China completes the top 10, with a 3% share of uranium reserves, or about 224,000 tonnes.

A caveat to this is that current data is based on known uranium reserves that are capable of being mined economically. The total amount of the world’s uranium is not known exactly—and new deposits can be found all the time. In fact the world’s known uranium reserves increased by about 25% in the last decade alone, thanks to better technology that improves exploration efforts.

Meanwhile, not all uranium deposits are equal. For example, in the aforementioned Olympic Dam, uranium is recovered as a byproduct of copper mining occurring at the same site. In South Africa, it emerges as a byproduct during treatment of ores in the gold mining process. Orebodies with high concentrations of two substances can increase margins, as costs can be shared for two different products.

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