Convertibles secondary awaits earnings, new supply; Liberty Media exchangeables lower

By Abigail W. Adams

Portland, Me., July 24 – It was a sleepy start to the week in the convertibles secondary space on Monday as markets stared down an onslaught of earnings from the bellwethers of tech and the Federal Open Market Committee’s rate decision on Wednesday.

Trading activity remained anemic with few major price movements in the names that did trade.

Market players are awaiting some earnings-related volatility or the reactivation of the primary market to jumpstart activity in the secondary space, sources said.

Equity indexes squeaked out gains on Monday after some dipped into negative territory at the open.

The Dow Jones industrial average closed the session up 184 points, or 0.52%, the S&P 500 index closed up 0.40%, the Nasdaq Composite index closed up 0.19% and the Russell 2000 index closed up 0.28%.

There was $35 million of convertible bonds on the tape about one hour into the session and $250 million on the tape about one hour before the market close.

Investment-grade convertible notes continued to dominate trading although with little movement in price.

Western Digital Corp.’s short-duration 1.5% convertible notes due Feb. 1, 2024 (Baa3), Southern Co.’s 3.875% convertible notes due 2025 (Baa2/BBB) and American Water Capital Corp.’s 3.625% exchangeable notes due 2026 (Baa1/A-) collectively accounted for about one-quarter of the total volume in the space.

Liberty Media Corp.’s 2.75% exchangeable notes due 2049 for Sirius XM Holdings Inc.’s common stock were lower outright but moving in line dollar-neutral on Monday as Sirius’ stock continued to give back gains from the massive short-squeeze of the previous week.

Axon Enterprise Inc.’s 0.5% convertible notes due 2027 were also lower alongside stock although the notes were unchanged dollar-neutral.

Investment-grade trades

It was another day of investment-grade trades in the convertibles secondary space on Monday with little to move the needle in either direction.

Western Digital’s short-duration 1.5% convertible notes due Feb. 1, 2024 were among the most actively traded issues of the session.

The 1.5% notes continued to trade on a 97-handle with several large prints at 97.5, according to a market source.

The yield was about 6.56%.

There was $20 million in reported volume.

The notes are not equity sensitive and have long traded for their yield with the notes to be redeemed at par on maturity.

Southern Co.’s 3.875% convertible notes continued to trade on either side of 101.

The notes were changing hands at 100.875 versus a stock price of $72.75 in the late afternoon.

There was $19 million in reported volume.

Southern Co.’s stock traded to a low of $72.50 and a high of $73.37 before closing at $72.95, down 0.15%.

American Water’s 3.625% exchangeable notes due 2026 remained on a 102-handle.

The notes were trading at 102.375 versus a stock price of $148.32 in the late afternoon, according to a market source.

There was $15 million in reported volume.

American Water’s stock traded to a low of $146.63 and a high of $149 before closing at $147.72, down 0.74%.

Liberty Media comes down

Liberty Media’s 2.75% exchangeable notes due 2049 for SiriusXM’s stock were lower outright as stock came back to earth following last week’s massive short-squeeze.

The 2.75% notes were off 2 points outright with stock down 15%.

The notes were changing hands at 94 in the late afternoon.

While lower outright, the notes were moving in line dollar-neutral, a source said.

There was $4 million in reported volume.

SiriusXM’s stock traded to a low of $5.98 and a high of $6.94 before closing at $6.00, a decrease of 15.25%.

Stock was coming down from its meteoric rise last Thursday when a short-squeeze drove stock up 42% in a single session.

The exchangeable notes contracted on the move up and have been trading in line dollar-neutral since, a source said.

Axon lower

Axon’s 0.5% convertible notes due 2027 were lower outright with stock resuming its downtrend on Monday.

The 0.5% notes fell 1 point outright with stock off a little more than 1% early in the session.

The convertibles were seen just shy of 101 versus a stock price of $179.79 early in the session, according to a market source.

There was $3 million in reported volume with the notes among the most active early but quiet for the remainder of the session.

Axon’s stock traded to a low of $177.14 and a high of $181.34 before closing at $178.30, off 0.92%.

Axon’s convertible notes have fallen about 5 points with stock off more than 8% over the past week.

However, the notes have been moving in line dollar-neutral, a source said.

Mentioned in this article:

American Water Works Co. Inc. NYSE: AWK

Axon Enterprise Inc. Nasdaq: AXON

Sirius XM Holdings Inc. Nasdaq: SIRI

Southern Co. NYSE: SO

Western Digital Corp. Nasdaq: WDC

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