CHK Chesapeake Energy Corporation

Junk bonds traded mostly higher Tuesday, reversing some of the deep losses seen in recent days as investors fretted over low oil prices and the closure of a junk-bond fund.

Bonds from Frontier Communications Corp., Ally Financial Inc. and Energy Transfer Equity LP posted small gains Tuesday, with some trades about 1 cent on the dollar higher, according to data from MarketAxess Holdings Inc.

The increase is in line with global markets Tuesday, as investors look to a decision from the Federal Reserve on raising benchmark interest rates after its policy meeting this week.

The iShares iBoxx USD High Yield Corporate Bond exchange-traded fund, the largest junk-bond ETF by assets, was up roughly 1.2% in premarket trading, to $79.74 a share.

Prices in the junk-bond market have declined steeply in recent days, as investors worried that prolonged low oil and commodity prices would push many junk-rated energy and mining firms into default. Negativity also swept the market after Third Avenue Management LLC said it would close its $789 million Focused Credit Fund and that investors may not get their money back for months.

Through Monday, U.S. junk bonds have returned a negative 5.8% on the year, a figure that reflects price changes and interest payments, according to Barclays data. In contrast, the total return on the S&P 500 stock index is a positive 0.21%, according to S&P Dow Jones Indices.

Investors will be closely watching debt from Chesapeake Energy Corp., which set a Tuesday deadline for a debt swap and could announce its results later in the day.

The company, viewed as a benchmark in the junk-bond energy sector due to its heavy debt load, is seeking to push out maturities and lower its overall debt burden with the exchange, but it remains unclear how many investors will participate. The new bonds will give investors a stronger claim on the company's assets in exchange for a principal reduction on their old bonds.

The Wall Street Journal reported Monday that Chesapeake is working with restructuring advisers at Evercore Partners Inc. Some Chesapeake bonds fell to 30 cents on the dollar or lower in trading on Monday.

Brian Gibbons Jr., senior oil and gas analyst at research firm CreditSights, said investors would be better off exchanging their bonds, though the outlook is still bleak if energy prices don't recover.

"This company is going to have to file [for bankruptcy] at some point or do a major out-of-court restructuring," he said. "This is just the first step here."

Write to Mike Cherney at mike.cherney@wsj.com

(END) Dow Jones Newswires

December 15, 2015 09:45 ET (14:45 GMT)

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