Morning Commentary Junk market opens mixed, digests data; oil names firm; GameStop deal awaited

By Paul Deckelman

New York, March 4 – The high-yield bond market was mixed in the early going on Friday, traders said.

The energy sector – which has recently been on the rebound, along with world crude oil prices – continued to show strength.

A trader noted that “some energy names were up by 5 points, or even more” – for example, SM Energy Co., whose 5 5/8% notes due 2025 jumped to 50¼ bid at mid-morning – up from their Thursday close around 46¾ bid and well up from their last previous large-sized trade, just below 44 bid.

However, he said that the Denver-based independent oil and natural gas exploration and production company’s rise was on “no real volume,” with just one round-lot trade and a couple of smaller transactions seen.

He said that the story was “the same with a few others – and we’re seeing a few more sellers in the market this morning.

At another desk, a trader saw Chesapeake Energy Corp.’s 8% notes due 2022 up by 1 1/8 points on Friday to 50 1/8 bid, on brisk early morning volume of more than $12 million.

The Oklahoma City-based energy operator’s issue had zoomed by some 3¾ points on Tuesday and by another 5 points on Thursday.

That rise coincided with a 60% jump in the company’s New York Stock Exchange-traded shares over that time stretch on the news that Chesapeake was cooperating with federal prosecutors on the government’s bid-rigging case against its former CEO, Aubrey K. McClendon – who was killed in a car accident on Wednesday in Oklahoma City.

McClendon’s death came just a day after his indictment on charges that he colluded with executives of other energy companies to rig bids on auctions for drilling rights on land parcels, a charge he had denied just hours before his death.

The case against McClendon personally will now be dropped, but the government is still investigating the matter and other indictments may result. However, Chesapeake itself has received immunity under a Justice Department leniency program that shields companies from criminal charges – if they are first to report antitrust violations.

Market digests jobs numbers

Traders saw no immediate market response to employment data released Friday morning by the U.S. Department of Labor, which said that non-farm payrolls saw a gain of 242,000 jobs in February – a number exceeding analysts’ expectations of about a 190,000-jobs gain.

The unemployment rate was stable at 4.9%, an eight-year low.

The Labor Department also said that the American economy added 30,000 more jobs in December and January than previously reported.

Fixed-income market participants were initially digesting the numbers, calculating what they may mean for the interest-rate environment.

The positive economic data fuels speculation that the Federal Reserve’s policy-setting Federal Open Market Committee may opt to bump interest rates up slightly at its two-day meeting on March 15-16.

GameStop deal awaited

In the primary sphere, only one deal was being actively marketed – by GameStop Corp., a Grapevine, Texas-based electronic game maker.

It is shopping around a $400 million five-year offering of Rule 144A and Regulation S senior notes via sole bookrunner Bank of America Merrill Lynch, with pricing expected sometime during Friday’s session.

The prospective new deal first surfaced in the market on Wednesday.

The notes have two years of call protection.

The company plans to use the proceeds from the note sale for general corporate purposes, potentially including dividends and stock buybacks.

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