Morning Commentary: VNET convertible notes skyrocket post-earnings as put date nears

By Abigail W. Adams

Portland, Me., Nov. 16 – The convertibles secondary space remained relatively active early Thursday as broader markets pulled back from the spectacular post-CPI rally earlier in the week.

While the macro data released since the CPI report continued to support the market’s expectation for an end to the Fed’s rate hike campaign, it also reflected a weakening economy with recession risk once again coming into view.

Equity indexes were mixed at the open but turned negative as the session progressed as Treasury yields fell on the heels of the latest U.S. jobless claims, which rose to the highest level in two years.

The Dow Jones industrial average was down 82 points, or 0.24%, the S&P 500 index was down 0.14%, the Nasdaq Composite index was down 0.32% and the Russell 2000 index was down 1.41% shortly before 11 a.m. ET.

There was $82 million in reported volume about one hour into the session with activity concentrated in two issues – CenterPoint Energy Inc.’s 4.25% convertible notes due 2026 (Baa2) and VNET Group, Inc.’s (formerly 21Vianet Group Inc.) 0% convertible notes due 2026.

CenterPoint’s 4.25% convertible notes due 2026 improved in heavy volume.

The notes added about 0.25 point outright to trade at 99.5 early in the session, according to a market source.

There was $12 million in reported volume.

CenterPoint’s stock was trading at $27.83, an increase of 1.48%.

VNET’s 0% convertible notes due 2026 surged on Thursday after the Beijing-based internet and data center service provider reported earnings.

The 0% notes shot up 15 points outright as the market expressed increased confidence the company will honor the notes’ upcoming put.

The notes jumped to a 90-handle and were trading in the 90.25 to 90.75 context in heavy volume, a source said.

The yield fell to about 55%.

There was $12 million in reported volume.

The 0% notes were previously trading on a 74-handle with a yield of over 130%.

The notes are not equity sensitive and have long traded based on market speculation about the company’s ability to honor the put.

The notes become putable on Feb. 1, 2024.

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