Watch out for investing in high yield corporate debt. U.S. default rates are surging higher and breaking away from the rest of the world.

default-rates-chart

The U.S. has more oil and gas firms that are financed by the high yield bond market than anywhere else on the planet. The S&P calls these oil and gas companies the “weakest links.”

Accommodative Federal Reserve policy (ultra-low interest rates and lower lending standards) caused a lot of borrowing by smaller oil and gas companies profiting from the shale oil boom. When the price of oil crashed, S&P downgraded the credit rating on lots of that debt to B- and lower.

lower-rated-debt-chart

Now you see why many oil and gas executives are using the mainstream financial media to disseminate fantastic stories of oil production cuts by OPEC members. The goal is to jawbone the price of oil higher. No one is going to cut production when oil prices are this low because they have to produce more to make up for the budget shortfalls caused by the lower price of oil. Remember the law of man: when things get bad enough, it’s every man/country for himself.