Reddit-Fueled Stock Rallies Boost Some Bond Prices

Some bonds have followed. AMC’s $1.5 billion notes due June 2026 have jumped more than 30 cents to 72.75 cents on the dollar, for a 20.521% yield.

American Airlines Inc.,

AAL -5.14%

another apparent favorite of Reddit speculators, has $750 million notes due June 2022 that are up more than 6 cents on the dollar this week to 94.50 cents, according to MarketAxess, implying a 9.487% yield.

Bonds tied to offshore drilling contractor Transocean Ltd. and movie advertising company

National CineMedia Inc.

have also experienced modest gains as shares rallied this week. GameStop bonds rose earlier in the week before retreating when the stock fell Thursday.

Rising stock prices are generally good for bond investors because they imply companies are worth more than their debt. They can also help companies pay down bonds or loans with cash raised from new stock sales.

The gains this week are different because many analysts doubt that they are sustainable. In many cases, investors are buying stocks to punish short sellers and see how high they can push up stocks rather than from any conviction in their value, these analysts say. Many of the businesses attracting attention are in sectors that are still severely hurt by the effects of the coronavirus pandemic.

Still, even temporary gains could afford some companies a window to improve their balance sheets, said

Geof Marshall,

head of fixed income at Signature Global Asset Management, a division of CI Global Asset Management. The investors behind the recent moves also can’t be completely dismissed, given their ability to move shares and their sophisticated targeting of stocks that others are betting against.

“At the end of the day, I think it’s broadly credit positive because it’s indicative of capital willing to go into risky situations,” he said.

Some investors are looking to the example set by AMC in recent months as one way companies could benefit from the attention. Demand for AMC shares allowed the company to raise hundreds of millions of equity to help in its fight to avoid bankruptcy. The company’s debt burden also declined when the private-equity firm Silver Lake Group LLC took advantage of AMC’s rising stock price to convert $600 million of convertible bonds into equity.

American Airlines convertible bonds due July 2025 similarly jumped as high as 198.434 cents on the dollar this week from 123.920 Monday. The airline’s stock has climbed more than 9% this week, despite reporting a $8.9 billion loss for last year on Thursday.

Write to Sebastian Pellejero at sebastian.pellejero@wsj.com and Sam Goldfarb at sam.goldfarb@wsj.com