Morning Commentary: Ford convertible notes in focus early, improve post-earnings

By Abigail W. Adams

Portland, Me., July 28 – The convertibles primary market remained dormant on Thursday as the market continued to digest a slew of economic data, earnings reports and the Federal Reserve’s 75 basis point rate increase.

With no deals announced Thursday, July is set to be a paperless month for the convertibles market.

While there is money to be put to work in the convertibles market, uncertainty still remains high with views mixed about the economic outlook.

Equity markets pulled back after their strong rally. However, after opening in the red, indexes were mixed with some turning positive with others well off their morning lows.

The Dow Jones industrial average was up 48 points, or 0.14%, the S&P 500 index was up 0.19%, the Nasdaq Composite index was down 0.02%, and the Russell 2000 index was down 0.08% shortly before 11 a.m. ET.

While a surprise contraction of the U.S. GDP in the second quarter initially sparked selling activity, the economic figure also lowered the outlook for the Federal Reserve’s rate increase.

With equities volatile, activity in the convertibles secondary space remained thin with $88 million on the tape about one hour into the session.

Ford Motor Co.’s 0% convertible notes due 2026 were in focus with the notes making strong gains on an outright and dollar-neutral basis post-earnings.

The 0% convertible notes gained 3.5 points outright with stock up about 4%.

The notes were changing hands at 103.5 early in the session.

The notes expanded 0.5 to 0.75 point dollar-neutral, a source said.

Ford’s stock was trading at $13.66, an increase of 3.68% shortly before 11 a.m. ET.

The company reported a surprise earnings beat with earnings per share of 68 cents versus analyst expectations for earnings of 43 cents.

Revenue was $37.91 billion versus analyst expectations for revenue of $35.17 billion.

Ford also announced that layoffs were coming.

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