The price of oil is plunging. Bad for oil producers, but good for consumers. However! That does not mean that you can sit idly by without stressing out about the potential for disaster. Because one other side effect of this oil plunge is that all of the bonds issued by oil-related companies when oil prices were high—hundreds and hundreds of billions of dollars worth of bonds—are now looking like they may have been bad bets, with oil prices low. And these shitty oil bonds are held by portfolios across the world. "The oil bust is exposing cracks in the $1.3 trillion junk-bond market, putting pressure on a key source of corporate financing and potentially crimping economic growth," sayeth the Wall Street Journal. "A pullback from junk bonds is often a harbinger of a broader reassessment of risk across financial markets, raising the possibility that investors could turn more wary of stocks and other assets."
And it's not just junk bonds related to oil—there are junk bonds for all types of shitty companies, and investors have spent the past several years gobbling 'em up in the search for "yield," which is a Wall Street term meaning "I will invest in literally anything that offers a high return on my investment no matter how high the chance that it will explode like so much nitroglycerin at the merest whisper of bad news." Regular bonds are paying very little right now, so investors have naturally gravitated toward junk bonds, which pay more, because they will one day quietly pack up and leave town with all of your money, if you don't watch out. Now, with the oil-covered chickens coming home to roost, Bloomberg says that "The market for new junk bonds has all but shut."
Will junk bonds be the thing that fucks us all real good, as something or someone always does? Perhaps.