Convertibles secondary activity slows; Illumina ticks higher; Ford lower in active trade

By Abigail W. Adams

Portland, Me., Dec. 23 – While equity markets remained volatile following the release of the Consumer Price Expenditure report, activity in the convertibles secondary space slowed to a crawl with not much expected from Friday’s session.

Equity indexes saw heavy selling after the opening bell but eliminated their losses and swung to positive territory with indexes closing the day with nominal gains.

The Dow Jones industrial average closed Friday up 176 points, or 0.53%, the S&P 500 index closed up 0.59%, the Nasdaq Composite index closed up 0.21% and the Russell 2000 index closed up 0.32%.

While the November CPE report was looked to as the last major catalyst of market movement in 2022, the report was largely in line with expectations and the market reaction was muted.

There was $98 million in reported convertibles trading volume in the late afternoon with only two issues seeing more than $10 million in reported volume.

Illumina Inc.’s soon-to-mature 0% convertible notes due Aug. 18, 2023 (BBB) remained the top traded issue in the space with the notes switching hands as their maturity approaches.

Ford Motor Co.’s 0% convertible notes due 2026 were weaker in active trading with the issue seeing heavy losses throughout the year.

Illumina higher

Illumina’s 0% convertible notes continued to dominate activity in the secondary space with the notes ticking higher during Friday’s session.

The 0% notes edged higher to 97 with the yield decreasing to 4 7/8%, according to a market source.

There was $10 million in reported volume with two $5 million plus trades on the tape.

The notes also saw heavy volume on Thursday with the notes wrapped around 96.75 and the yield about 5¼%.

The notes have long traded for the yield with the notes expected to be redeemed at par upon their maturity.

While the notes have historically traded with a healthy premium to Treasuries that margin has narrowed.

The 0% notes now offer only slightly more yield than the one-year Treasury bill, which closed Friday with a yield of 4.695%.

Ford notes weaken

Ford’s 0% convertible notes due 2026 were weaker in active trading on Friday.

The notes were down about 0.5 point outright with stock posting gains.

The notes were seen at 93.75 in the early afternoon, according to a market source.

There was $7 million in reported volume.

Ford’s stock traded to a low of $11.22 and a high of $11.40 before closing the day at $11.36, an increase of 0.44%.

Ford’s 0% notes were among the top performers of 2021 with the notes closing the year at 137.5.

However, the notes were among the top underperformers of 2022 with the notes posting total absolute returns of negative 24.7%, according to the Barclays report U.S. Convertibles Outlook 2023: Bridge Over Troubled Water.

Mentioned in this article:

Ford Motor Co. NYSE: F

Illumina Inc. Nasdaq: ILMN

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