Pinduoduo convertibles in focus, gain; American Airlines, Southwest rise; Ford improves

By Abigail W. Adams

Portland, Me., March 29 – There was an uptick of activity in the convertibles secondary space on Tuesday on a strong day for equity markets as optimism surrounding a potential Russian and Ukrainian cease-fire grows.

The Dow Jones industrial average closed the day up 338 points, or 0.97%, the S&P 500 index closed up 1.23%, the Nasdaq Composite closed up 1.84% and the Russell 2000 index closed up 2.65%.

There was $107 million in reported convertibles trading volume about one hour into the session and $577 million on the tape heading into the market close.

While equity markets were strong and several names improved on Tuesday, the buyers in the market were being selective, a source said.

With the VIX index coming in as equity markets improved, some of the higher vol. names in the space were coming in, a source said.

“For a strong day, the market still feels heavy,” the source said.

Despite the underlying apprehension in the market, several badly battered names were improved.

The convertible notes of airlines were active and gaining on an outright and dollar-neutral basis as oil futures continued to come in on the prospects of an end to hostilities.

American Airlines Group Inc.’s 6.5% convertible notes due 2025 and Southwest Airlines Co.’s 1.25% convertibles due 2025 (Baa1/BBB) continued to recoup their losses after getting smashed on surging oil prices at the outset of Russia’s invasion.

Pinduoduo Inc.’s 0% convertible notes due 2025 were the most actively traded name in the space with the notes continuing to rise on an outright basis.

Ford Motor Co.’s 0% convertible notes due 2026 were also on the rise in active trading as the notes transition from Rule 144A to Securities and Exchange Commission-registered paper.

Airlines gain

American Airlines’ 6.5% convertible notes due 2025 and Southwest Airlines’ 1.25% convertibles due 2025 were on the rise on an outright and dollar-neutral basis as crude oil futures continued to fall on the prospects of a Russia-Ukraine cease-fire.

American’s 6.5% convertible notes due 2025 rose 4 points outright with stock up about 5%.

The notes were changing hands at 135.875 versus a stock price of $18.01 early Tuesday.

They were trading at 136.125 versus a stock price of $18.13 in the late afternoon.

The notes gained about 0.625 to 0.75 point dollar-neutral, a source said.

There was $12 million in reported volume.

American’s stock traded to a high of $18.43 and a low of $17.86 before closing the day at $18.16, an increase of 4.97%.

Southwest Airlines’ 1.25% convertibles due 2025 (Baa1/BBB) gained 1.25 points outright with stock up more than 3%.

The 1.25% convertible notes were changing hands at 136.5 versus a stock price of $45.54 early in the session.

They continued to trade around 136.5 in the late afternoon.

The notes were moving in line to up 0.25 point dollar-neutral, a source said.

There was $18 million in reported volume.

Southwest’s stock traded to a low of $45.06 and a high of $46.19 before closing the day at $45.35, an increase of 2.09%.

American Airlines’ and Southwest’s convertible notes were slammed as crude oil futures catapulted above $120 following Russia’s invasion of the Ukraine.

American’s 6.5% notes traded as low as 112 and contracted several points dollar-neutral in early March.

Southwest’s convertible notes traded as low as 121 although they held on a dollar-neutral basis.

Crude oil futures were once again testing the $100 threshold on Tuesday.

WTI crude traded as low as $98.44 before bouncing to settle at $105.26, a decrease of 67 cents or 0.63%. Brent crude traded as low as $102.19 before gaining to settle at $108.90, an increase of $1.19 or 1.10%.

Pinduoduo in focus

Pinduoduo’s 0% convertible notes due 2025 were in focus on Tuesday with the notes continuing to gain on an outright basis.

The 0% notes were up another 1 point outright.

They were changing hands at 89.125 versus a stock price of $45.09 in the late afternoon.

There was $23 million in reported volume.

Pinduoduo’s American Depositary Shares traded to a high of $47 and a low of $44.02 before closing the day at $44.30, an increase of 1.44%.

Ford registers

Ford’s 0% convertible notes due 2026 were improved in active trading on Tuesday as the bonds transition from Rule 144A to registered paper, a source said.

The 0% convertible notes rose more than 4.5 points outright with stock up 6.5%.

The notes were changing hands at 122 versus a stock price of $17.74 in the late afternoon, according to a market source.

There was $13 million in reported volume.

Ford’s stock traded to a high of $17.80 and a low of $17.01 before closing the day at $17.75, an increase of 6.48%.

Mentioned in this article:

American Airlines Group Inc. Nasdaq: AAL

Ford Motor Co. NYSE: F

Pinduoduo Inc. Nasdaq: PDD

Southwest Airlines Co. NYSE: LUV

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