Convertibles trade quietly with upside bias in post-holiday session; Li Auto notes gain

By Rebecca Melvin

Concord, N.H., June 1 – The convertible bond market started out the holiday-shortened week with quiet trading on Tuesday, as U.S. stocks turned mixed by mid-morning following a firmer open.

U.S. financial markets were closed on Monday in observance of Memorial Day.

Convertibles trading was focused on names with higher underlying shares and month-end marking, according to a market source. No new deals were heard to have launched or priced during the session, although there are deals in the pipeline, and a flurry of activity is expected in upcoming days, sources have said.

Li Auto Inc.’s 0.25% convertibles due 2028 changed hands higher by nearly 2 points as the common shares rose 3% to $24.00 per share in the early going. The convertible was atop the Trace volume chart at mid-morning with a 107.316 print, which was up 1.917 points at 10:15 a.m. ET.

The China-based electric vehicle maker reported mixed first-quarter earnings last week and guided second-quarter sales lower, although it also forecast record deliveries. The company forecast second-quarter revenue of $609 million to $651.7 million, below estimates for $704.5 million, with deliveries expected to climb to 14,500 vehicles to 15,500 vehicles, which is up 120% to 135% from a year earlier.

Pinduoduo Inc.’s 0% convertible notes due 2025 jumped 2.5 points in the early going, according to Trace data, with a trade at 104.875 as shares gapped higher. The Pinduoduo ADRs gained $12.60, or 10%, at $137.48 out of the chute following the Shanghai-based e-commerce company’s first-quarter earnings beat last week. The shares continued to move up, closing up $15.64, or 12.52%, to $140.52 on the day.

The convertibles traded last at 106.557, which was just shy of the day’s high print at 106.738, according to Trace data.

Pinduoduo reported a 239% gain in revenue to 22.17 billion yuan for the first quarter and a 49% increase in monthly active users year over year to 724.6 million.

John Bean Technologies Corp.’s convertibles also gained on Tuesday. The new John Bean 0.25% notes due 2026, which debuted in the market a week ago, traded at 108.446 with shares up $5.99, or 4.2%, to $150.02.

John Bean priced $350 million of the five-year convertibles notes after the market close on May 25.

The notes priced at the midpoint of talk, which was for a coupon of 0% to 0.5% and an initial conversion premium of 30% to 35%. On the break, the 0.25% convertible notes changed hands in a range of 104.5 to 105.5 with stock up more than 5% in that session, to close at $141.89. The move represented a 2.5 point to 3 point expansion on hedge.

The 0.375% convertible notes due 2024 of Waltham, Mass.-based Repligen Corp. hadn’t yet moved in early trade on Tuesday after shedding 0.9 point on Friday to close at 166. But later in the session the convertibles dropped in trade to 159. Shares were down $6.86, or 3.8%, to $175.75 as of late morning, and they closed down $9.86, or 5.4%, to $172.75 on the day.

In the broader markets, oil prices rose to a two-year high amid expectations of growing demand as Covid-19 looks to be on decline in many regions and economic activity remains poised to supplant lockdowns. The United Kingdom reported no new deaths within 28 days of a positive Covid-19 test on Tuesday. The last time Britain recorded no deaths was in March 2020, which was before the country entered its first lockdown, according to a Reuters report.

Members of the Organization of the Petroleum Exporting Countries and their allies agreed on Tuesday to move ahead with a series of monthly production hikes. The cartel is expected to add 2.1 million barrels per day to the market between May and July, along with an additional boost by Saudi Arabia.

West Texas Intermediate rose $1.40, or 2.1%, to $67.72 a barrel.

OPEC alliance members were optimistic with Saudi Arabia energy minister prince Abdulaziz bin Salman saying, “the demand picture has shown clear signs of improvement.”

Meanwhile, investor inflation fears appeared to abate amid growing convictions that central banks won’t allow rising inflation to lead to unwinding of stimulus measures.

The Institute for Supply Management’s survey of purchasing managers at U.S factories was 61.2 in May, up from 60.7 in April, according to a Tuesday news release. A PMI reading above 50 indicates that the manufacturing economy is generally expanding. But while demand was strong, supply-chain bottlenecks and labor shortages weighed on manufacturers and reigned in factory output.

Meanwhile, all eyes are trained on Friday’s U.S. jobs report in expectation the data point will provide solid insight into the direction of monetary policy.

Mentioned in this article:

John Bean Technologies Corp. NYSE: JBT

Li Auto Inc. Nasdaq: LI

Pinduoduo Ltd. NYSE: PDD

Repligen Corp. Nasdaq: R

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