Convertibles market quiet; Ford gains; DraftKings up outright, down dollar-neutral

By Abigail W. Adams

Portland, Me., March 19 – The convertibles secondary space saw a quiet end to a tumultuous week as market players recovered from more carnage on the new issue front.

The convertibles primary market priced $4.935 billion in nine deals over the past week.

The new paper hit the secondary space as risk assets continued to suffer amid a surging 10-year Treasury yield and concerns about inflation.

While the pain was not equally distributed over the deals to price this past week, some were disasters, sources said.

Equity markets saw a modest rebound on Friday following Thursday’s sell-off.

However, several recent issues remained contracted.

“A quiet period for the convertibles market would be a good thing right now,” a source said. “Let things settle.”

DraftKings Inc.’s 0% convertible notes due 2028 hit their highest outright level since pricing on Monday as stock rebounded.

However, the notes continued to contract on a dollar-neutral, or hedged, basis.

Ford Motor Co.’s 0% convertible notes due 2026 continued to dominate the tape with the notes improving on an outright and dollar-neutral basis.

Meanwhile, outside of recent issues, Southwest Airlines Co.’s 1.25% convertibles due 2025 remained active as stock continued to circle around its new 52-week high, which it hit earlier in the week.

Pioneer Natural Resources Co.’s 0.25% convertible notes due 2025 were also active with the notes continuing to contract after getting walloped the previous week due to selling pressure as it exited the Refinitiv Convertible index.

DraftKings in focus

DraftKings’ 0% convertible notes due 2028 hit their highest outright level since pricing on Friday.

However, the notes continued to contract on the move up.

The 0% notes gained 2 points outright to trade up to 104 as stock surged more than 6%.

However, the notes continued to contract and were down 1.5 points dollar-neutral since they made their aftermarket debut on Tuesday.

DraftKings’ stock traded to a high of $72.83 and a low of $67.92 before closing the day at $71.98, an increase of 6.46%

The notes have been volatile alongside the broader markets. While they traded as high as 103 on their aftermarket debut on Tuesday, they closed the day below par.

While the notes improved on an outright basis throughout the week, they remained contracted dollar-neutral.

Ford improves

Ford Motor’s 0% convertible notes due 2026 rebounded on Friday alongside equity markets.

The 0% notes traded as high as 102 in intraday activity.

However, they stood poised to close the day at 101.

The notes gained about 0.25 point dollar-neutral, a source said.

Ford’s stock traded to a high of $12.95 and a low of $12.55 before closing the day at $12.83, an increase of 2.72%.

The $2 billion issue, which made its aftermarket debut on Wednesday continued to dominate the tape.

Southwest active

Southwest Airlines’ 1.25% convertible notes due 2025 continued to see high volume on Friday as stock circled around its 52-week high, which was set earlier in the week.

The 1.25% convertible notes traded up to 172.25 in the late afternoon.

The trading level was close to the highest it has been since the $2.3 billion issue priced in April 2020.

Outright holders were selling the notes and convertible arbitrage players were buying them, a source said.

Southwest’s stock traded to a high of $61.48 and a low of $59.63 before closing the day at $61.05, an increase of 0.18%.

The airline’s stock hit a 52-week high of $62.76 on Monday with travel and leisure stocks popular with investors on optimism surrounding an economic reopening.

Pioneer contracts

Pioneer Natural Resources’ 0.25% convertible notes due 2025 continued to contract in active trading on Friday after getting walloped the previous week.

The 0.25% notes were hovering around 160 in the high-volume activity.

They were down another 0.25 point dollar-neutral, a source said.

Pioneer’s stock traded to a high of $164.77 and a low of $157.90 before closing the day at $163.48, an increase of 0.99%.

The 0.25% notes plunged in high-volume activity the previous week with the notes contracting upwards of 5 points dollar-neutral.

Selling pressure dragged the notes down as the issue was dropped from the Refinitiv Convertibles index, a source said.

Mentioned in this article:

DraftKings Inc. Nasdaq: DKNG

Ford Motor Co. NYSE: F

Pioneer Natural Resources Co. NYSE: PXD

Southwest Airlines Co. NYSE: LUV

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