Business & Investment

GameStop and AMC dramas go beyond the stock market

The bond market is almost out of reach for day traders without the help of an agent, so it will look safe from the dynamics that caused equity volatility like GameStop Corp.

But that’s not the case.

A spectacular rise in GameStop this month
AMC Entertainment Holdings Co., Ltd.

Other significantly short-circuited stocks targeted by day traders gathered in online forums in the fight against Wall Street shortsellers were also hit by high-value corporate bond movements.

Individual investors using Reddit’s Wall Street Bets and other online forums still have little direct impact on the broad bond market, but speculative stock purchases can have real spillover effects. There is.

“There is little individual investor presence in the corporate bond market,” said John McLean, portfolio manager at Diamond Hill Capital Management, but “the side effects of GameStop,” the soaring stock prices, issue stocks to companies. And use that money to strengthen your balance sheet, increase your liquidity position and repay your existing debt.

“If GameStop’s capital goes parabolic, it can boost the company’s market capitalization significantly, and in theory, debt is somewhat better protected,” McClain said.

The problem is that the pandemic stimulus from policy makers and the rise of fee-free stock apps that anyone can swipe to trade stocks can pose real risks to retail investors and cause debt problems. McLean insisted that it was sexual. -Market participants.

“The casino is open and everyone is invited,” McLean said. “It’s free sake and basically free tips.”

The chart shows that AMC bonds not only recovered in January, but were also the most actively traded debt from the Russell 3000 Index list.
+ 1.00%

stock Included in MarketWatch’s short squeeze list 2021:

Bond rallies short of stocks


According to debt tracking platform BondCliq, AMC bonds have won $ 2 billion worth of transactions since the beginning of January, despite pandemic pressure.

According to BondCliq, a final check showed that the popular 12% bond, which expires in June 2026, was priced from $ 23.99 to $ 73.50 on January 6.

Cold water splattered as GameStop and AMC shares soared Thursday after several brokerage firms restricted purchases and lawmakers sought new restrictions.

However, they bounced off in extended trading after online trading platform Robin Hood said it would “allow limited purchases” of GameStop and other volatile stocks starting Friday.

read: AMC shares bounce after GameStop says Robin Hood will allow some purchases on Friday

Even at Thursday’s closing price, AMC’s share price was up 300% year-to-date, according to FactSet data.

As part of that, AMC has already raised $ 600 million. This is because some of the 2.95% of issued notes were converted to 44.4 million shares at a conversion price of $ 13.51 per share.

to see: Investors who convert AMC bonds to equities confirm that their holdings slide 30% in a few hours

Still, BNY Mellonwealth Head of Fixed Income Investment John Hula Hive said the recent stock trading riots had a limited overall impact on the broader fixed income market. Treasury yield for 10 years It holds about 1.06%.

“Can they use the stock market as a source of capital?” Hula Hive asked. “Theoretically, they can do that, but given the volatility of the market, it would be considered unlikely.”

GameStop and AMC dramas go beyond the stock market GameStop and AMC dramas go beyond the stock market

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