Morning Commentary: Semiconductor names eyed in convertibles market amid earnings

By Abigail W. Adams

Portland, Me., Jan. 28 – The convertible secondary space was quiet on Tuesday with the heavy trading volume seen in previous weeks tapering off.

There was $51 million in reported volume about one hour into Tuesday’s session with few names seeing concentrated trading activity, according to a market source.

With the convertibles primary market quiet and markets rebounding slightly from the coronavirus jitters, eyes were on the slew of earnings reports expected before the week draws to a close.

Microchip Technology Inc.’s 1.625% convertible notes due 2027 was the only issue to see $5 million or more in reported volume about one hour into the session.

The notes were trading up alongside stock as industry peers prepare to release their earnings reports.

The notes were changing hands at 141.5 early in the session, according to a market source. Microchip stock rose to $105.02, an increase of 1.98%, shortly before 11 a.m. ET.

While the Chandler, Ariz.-based developer and manufacturer of semiconductor equipment is not slated to release earnings until Feb. 4, Advanced Micro Devices Inc. will report earnings after the market close on Tuesday.

AMD’s highly anticipated earnings report will be an indication of where the semiconductor space is in its cycle and whether the 4% to 5.9% revenue growth that has been projected for semiconductors in 2020 will come to bear.

AMD’s deep-in-the-money 2.125% convertible notes due 2026 were one of the outperformers in the convertible space in 2019 and responsible for a large portion of the more than 20% returns seen in the Bloomberg Barclays US Convertible index.

The notes currently trade above six times par and are largely an equity surrogate, sources said.

While Tesla Inc.’s convertible bonds were quiet early in Tuesday’s session, all eyes will be on the electric car manufacturer after the market close on Wednesday as it releases its fourth-quarter earnings report.

Western Digital Corp. is also expected to release its earnings after the market close on Thursday.

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