Convertibles rally continues; Integer gains; Ford rises pre-earnings; growth returns

By Abigail W. Adams

Portland, Me., Feb. 2 – It was a hopping day in the convertibles secondary space with the bulls continuing to stampede to growth and tech stocks in the wake of what markets have interpreted as the Federal Reserve’s dovish tilt.

While value stocks underperformed with the Dow Jones industrial average in the red, the tech heavy Nasdaq Composite index continued to skyrocket with the index adding more than 5% in two sessions.

The Dow closed Thursday down 39 points, or 0.11%.

However, the S&P 500 index closed Thursday up 1.47%, the Nasdaq closed up 3.25% and the Russell 2000 index closed up 2.06%.

The massive move in credit, lower interest rates, FOMO, short-covering, and underinvestment were all factors in the strong rally, which lifted the convertibles secondary space on average 0.5 point dollar-neutral, a source said.

There was $118 million in reported volume about one hour into the session and $715 million on the tape about one hour before the market close.

Integer Holdings Corp.’s 2.125% convertible notes due 2028 continued to add to the strong gains made on their aftermarket debut on Wednesday.

Ford Motor Co.’s 0% convertible notes due 2026 also continued to rise in heavy volume with investor optimism high ahead of earnings.

DraftKings Inc.’s 0% convertible notes due 2028, Affirm Holdings Inc.’s 0% convertible notes due 2026, Upstart Holdings Inc.’s 0.25% convertible notes due 2026 and Coinbase Global Inc.’s 0.5% convertible notes due 2026 were among the badly battered issues of 2022 that made outsized gains in heavy volume on Thursday.

Integer day two

Integer’s 2.125% convertible notes due 2028 continued to add to the strong gains made on their Wednesday debut.

The notes climbed another 4 points outright with stock up 5.5%.

The notes were changing hands at 105 versus a stock price of $69.98 early in the session.

By the late afternoon, they were seen at 107.625 versus a stock price of $73.70.

The notes expanded another 1 point on hedge, a source said.

There was $17 million in reported volume.

Integer’s stock traded to a low of $69.03 before closing at the intraday high of $73.99, an increase of 7.24%.

Integer’s convertible notes played to strong demand during bookbuilding and have made outsized gains since hitting the secondary space on Wednesday.

The notes have now expanded about 3 points since pricing, a source said.

Ford optimism

Ford’s 0% convertible notes due 2026 continued to rise in heavy volume with optimism high about the earnings to be reported post-close.

The 0% convertible notes were up more than 2 points outright with stock up more than 4.5%.

The notes were trading at 105.375 early in the session. They traded as high as 106 in intraday activity but returned to 105 in the late afternoon.

The notes expanded another 0.5 point dollar-neutral.

There was $23 million in reported volume.

Ford’s stock traded to a high of $14.60 and a low of $14.03 before closing at $14.32, an increase of 3.77%.

Ford’s capital structure has made large gains since industry peer General Motors reported a surprise earnings beat earlier in the week, which lifted expectations for Ford’s earnings.

However, Ford did not live up to the optimism with the company reporting a topline earnings beat but missing on the bottom.

Ford reported earnings per share of 51 cents versus the 62 cents expected. Revenue was $44 billion versus the $41.4 billion expected.

Stock sank following the announcement and traded down to $13.36, a decrease of 6.7%, in aftermarket trading.

Lift-a-thon

It was a full-blown lift-a-thon in the secondary space with several of the worst performers of 2022 making outsized gains in heavy volume on Thursday.

DraftKings’ 0% convertible notes due 2028 continued their strong upward momentum after the gaming company announced layoffs as part of a reorganization strategy.

The 0% convertible notes added another 1 point outright with stock up 3%.

The notes were changing hands at 71.625 versus a stock price of $16.93 in the late afternoon.

They added another 0.5 point dollar-neutral.

“They keep marching higher,” a source said.

There was $18 million in reported volume.

DraftKings’ stock traded to a low of $16.62 and a high of $17.50 before closing at $17.02, an increase of 3.28%.

DraftKings’ 0% convertible notes have added 3 points dollar-neutral over the past week.

Affirm’s 0% convertible notes due 2026 added 4 points outright with stock up 20%.

They were seen at 67.375 versus a stock price of $20.94 in the late afternoon, according to a market source.

The yield fell to 10.75%.

There was $17 million in reported volume.

Affirm’s stock traded to a low of $18.72 and a high of $22.75 before closing at $21.14, up 19.30%.

Upstart Holdings’ 0.25% convertible notes due 2026 jumped 3 points outright with stock up 18%.

The notes were trading at 66 versus a stock price of $23.95 in the late afternoon.

They expanded 3 points dollar-neutral, a source said.

There was $14 million in reported volume.

Upstart’s stock traded between $21.50 and $26.35 before closing at $23.85, an increase of 18.07%.

Coinbase’s 0.5% convertible notes due 2026 jumped 3 points outright with stock up 20%.

The 0.5% notes were changing hands at 71.375 versus a stock price of $82.30 in the late afternoon.

There a wide range of arb strategies and deltas used on the notes, including hedging against their straight debt.

However, market players with a heavy equity hedge were looking at an expansion of 1 to 1.5 points dollar-neutral, a source said.

There was $14.5 million in reported volume.

Coinbase’s stock traded to a low of $68.31 and a high of $85.54 before closing at $81.46, an increase of 23.99%.

Mentioned in this article:

Affirm Holdings Inc. Nasdaq: AFRM

Coinbase Global Inc. Nasdaq: COIN

DraftKings Inc. Nasdaq: DKNG

Ford Motor Co. NYSE: F

Integer Holdings Corp. NYSE: ITGR

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