Convertibles trading light; Red Hat, JPMorgan’s Voya-linked notes active; Wayfair drops

By Abigail W. Adams

Portland, Me., Dec. 17 – Trading volume was light in the convertibles secondary space on Monday as equities saw another choppy session.

There was $41 million on the tape about an hour after the opening bell and $276 million by the late afternoon.

Red Hat Inc.’s 0.25% convertible notes due Oct. 1, 2019 were the most active in the secondary space with the notes continuing to trade at parity, a market source said.

JPMorgan Chase Financial Co. LLC’s 0.25% cash-settled equity-linked notes due 2023 tied to Voya Financial, Inc. were also volume leaders with a large seller in the market.

“You can tell there’s nothing going on if these are the top volume names,” a market source said.

Wayfair Inc.’s 1.125% convertible notes due 2024 remained active in the secondary space as stock continued to come in from its post-holiday shopping report bounce.

Prospect Capital Corp.’s convertible notes have seen an uptick in activity recently as buyers chase high-yield, short-duration paper, part of a defensive posture that has taken hold in markets, sources said.

Markets remained volatile on Monday with the Dow Jones industrial average opening down 300 points, paring its losses to a 40-point drop by the mid-afternoon and then plummeting to close the day down 508 points.

Volume leaders

Red Hat’s 0.25% convertible notes due Oct. 1, 2019 were the volume leaders of Monday’s session although the notes were little changed, a market source said.

They were changing hands at 239 with a large seller in the market, a source said. More than $15 million of the bonds were on the tape by the late afternoon.

The notes were trading at parity and move on a 100% delta, a source said.

Red Hat stock closed Monday at $176.00, a decrease of 0.28%.

The notes have long traded at parity.

However, their dollar-price moved above double par in late October after IBM announced it would acquire Red Hat for $190.00 per share in a deal that is expected to close in the second half of 2019.

JPMorgan’s 0.25% equity-linked notes due 2023 tied to Voya also saw a large seller on Monday. The notes were changing hands between 91.625 and 92 with about $10 million on the tape, according to Trace data.

Voya stock closed Monday at $40.42, a decrease of 2.08%.

Wayfair down outright

Wayfair’s 1.125% convertible notes remained active in the secondary space with the notes dropping on an outright basis with stock off throughout Monday’s session.

The notes were down more than 4 points outright to trade at 105.875 early in the session, a market source said.

The notes dropped another point to trade at 104.875 on an outright basis later in the afternoon.

After bouncing on the release of sales figures from the Black Friday/Cyber Monday weekend, Wayfair stock is returning to its previous levels.

Stock traded to a low of $92.29 but closed Monday at $93.45, a decrease of 9.53%.

The 1.125% notes were volume movers in the secondary space throughout last week.

They were added to the Thomson Reuters Convertible Indices on Dec. 13, according to a market source.

Short-duration notes eyed

Prospect Capital’s convertible notes have seen an uptick in activity with shorter-duration, higher yield notes a major theme of recent trading sessions.

The 4.75% convertible notes due April 15, 2020 were among the volume movers of Monday’s session.

They were changing hands between 99.25 and 99.5, sources said.

More than $12 million of the bonds were on the tape by the late afternoon.

The notes have little conversion value and were trading for their yield which was about 5%, according to a market source.

The business development company’s 5.875% convertible notes due on Jan. 15, 2019 have also seen an uptick in activity as its maturity date approaches.

The notes were largely changing hands at par on Monday with a 5.7% yield to maturity.

Mentioned in this article:

Prospect Capital Corp. Nasdaq: PSEC

Red Hat Inc. NYSE: RHT

Voya Financial, Inc. NYSE: VOYA

Wayfair Inc. NYSE: W

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