An article I read today speculates that OPEC, specifically Saudi Arabia are engaged in a price war with American oil producers (fracking and tar sands). Saudi can afford to sell oil below the break even price for American producers and they seek to drive 'em out. Junk bonds are loaded with 20-25% oil. The big banks are on the hook for the junk bonds. If Saudi's accomplish what they are suspected of doing, junk bonds will bust. When junk bonds bust the large banks will be in trouble. This article says the dominoes are in place for a repeat of 2008. They say watch the junk bonds. When they start to go, the market in general will crash.
Making things worse is that the Russian budget and economy is dependent upon oil being in the $100 bbl range. With the embargo and that factoid, Russia is in a shitload of trouble and may cause them to do something really, really stupid in Eastern Europe. Already America is rattling sabers by threatening to put nukes back into place and accuse the Russians of breaking a treaty regarding nukes.
For me, I'd like to round up the leaders of the major powers and OPEC and put them in a semi trailer and take it out to sea and sink it.
First, oil is a commodity. Do you mean many junk bonds are to oil companies?
Secondly, banks (at least when I was teaching this) are prohibited from holding junk bonds. (They have very tight restrictions on their risk pool.)
Big banks do not back junk bonds, else they would not be junk. I'm not sure what the article was claiming.
NOW, it may be smart (and arguably legitimate under National Defense) for the government to subsidize oil producers (specifically the shale oil) to keep their pumps operational if the Saudis artificially lower the price. (Just enough to break even.)
It would be costly, but likely cheaper than allowing the Saudis to drive our domestic competition out of business.
But, fortunately in all of this, I've recently read the frakkers should be able to compete not quite down to $50 a barrel given new breakthroughs.
Russia cannot. Venezuela cannot. They're screwed long before we are.