Our article “Big Oil's terrible day: Bond market (lack of) reactions” expressed surprise by the lack of reaction of the long-end USD curve of Shell bonds after the company had suffered a defeat in a Dutch court with respect to carbon emissions commitments. The share price had fallen but long-end spreads remained unchanged after that.
Since then, the Shell USD long-end has really underperformed, both on a relative and absolute basis and in contrast to a strong stock performance. The bonds have moved 50bp wider on a duration adjusted measure. By comparing with similar long-end USD oil bonds, Shell appears to have compressed vis-à-vis higher spread sector peers and decompressed from lower beta names.
We do believe that this pricing is at a level where investors could start looking at relative valuations, especially in the context of relative transition progression in the sector.