Morning Commentary: Convertibles space quiet; technology names active in early trading

By Abigail W. Adams

Portland, Me., March 13 – Trading volume in the convertibles space remained low early in Tuesday’s session with trading action around the recently priced deals slowing down. “It’s been very, very quiet,” a market source said.

The low trading volume was attributed more to the lack of new paper than the latest winter storm to pummel the East Coast. “Everyone made it in,” the New York-based market source said. “But there are no new deals.”

While trading volume was light early in the session, tech names were active on the tape.

Micron Technology Inc.’s 3% convertible notes due 2043 were volatile early in the session and moving in lock step with their underlying equity.

The 3% notes jumped about 10 points outright to trade at 214 versus an equity price of $62.66, an increase of about 5.5%, early in the session.

The 3% notes dropped a short time later to 205 as its equity also dropped to $59.90, an increase of less than 1%.

Microchip Technology Inc.’s 1.625% convertible notes due 2025 and 1.625% convertible notes due 2027 were also active early in the session. Microchip’s 1.625% notes due 2025 were trading in the 194 to 196 range early Tuesday.

Microchip’s 1.625% notes due 2027 traded up to 129. Microchip stock was down less than 1% early Tuesday.

While the deep in the money convertible notes are not much changed dollar neutral, they are looking better to buy, and hedge funds are moving in.

“Hedge funds are buying and setting up for the pullback,” a market source said. “They stand to make some money.”

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