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Morning Commentary: Investment-grade convertibles in focus as Treasury yields tumble
By Abigail W. Adams
Portland, Me., Nov. 3 – The convertibles secondary space stood poised for a strong end to a volatile week as markets continued to cheer on an end to the Fed rate hike campaign following the latest nonfarm payrolls report.
Equity indexes continued to gain with small cap stocks outperforming as Treasury yields crumbled with the labor market finally showing signs of cooling.
The Dow Jones industrial average was up 132 points, or 0.39%, the S&P 500 index was up 0.66%, the Nasdaq Composite index was up 0.78% and the Russell 2000 index was up 2.37% shortly before 11 a.m. ET.
The 10-year Treasury yield continued to plunge and was down another 16 basis points to 4.5% shortly before 11 a.m. ET after hovering at 4.9% on Wednesday in the run up to the Fed’s announcement.
High-grade names were in focus amid the move in rates with several names improved in early trade.
Southern Co.’s 3.875% convertible notes due 2025 (Baa2/BBB) continued their upward momentum with the notes rising another 0.5 point outright.
The notes were trading just north of 99.75 versus a stock price of $70.88 early in the session, according to a market source.
The yield dropped to about 4%.
There was $14 million in reported volume.
Southern Co.’s stock was trading at $70.77, an increase of 0.91%, shortly before 11 a.m. ET.
Southern Co.’s notes were trading on a 98-handle on Wednesday heading into Federal Reserve chair Jerome Powell’s press conference.
Duke Energy Corp.’s 4.125% convertible notes due 2026 (Baa2/BBB) added 0.25 point outright.
The notes were trading at 98.125 versus a stock price of $90.63 early in the session.
The yield was 4.95%.
There was $7.5 million in reported volume.
The notes were trading on a 97-handle with a yield of about 5.375% prior to Wednesday.
Duke Energy’s stock was trading at $91.51, an increase of 1.8%, shortly before 11 a.m. ET.
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