Covenant Arbitrage Exploited in High-Yield Bonds

Covenant Arbitrage Exploited in High-Yield Bonds

Victor J. Blue/Bloomberg

J.C. Penney Co.’s 7.125 percent notes due 2023 have risen 9 percent this month, even as the rest of its debt plummets, in a bet the retailer will be forced to repay the issue early because of a covenant breach.