Convertibles market quiet; high-grade notes active; Blackstone Mortgage under pressure

By Abigail W. Adams

Portland, Me., March 28 – The convertibles primary market was dormant on Monday as the end of the quarter approaches on Thursday.

No new issuance is expected in the coming week as convertibles issuers enter into earnings season blackouts and accounts close their books on a brutal quarter.

There has been $5.91 billion of convertibles price in 14 deals over the past quarter, according to the Prospect News database.

It has been the lowest volume quarter for new deal activity since 2016.

Meanwhile, the convertibles secondary space was also quiet on Monday with equities struggling to find direction as the 10-year Treasury yield broached fresh heights.

After wavering between gains and losses, equity indexes closed Monday’s session mixed.

The Dow Jones industrial average closed the day up 95 points, or 0.27%, the S&P 500 index closed up 0.71% and the Nasdaq Composite closed up 1.31%.

Small cap stocks underperformed on Monday with the Russell 2000 index remaining in negative territory throughout the session.

While the index closed the day down 0.23%, it was well off the low of the day.

The 10-year treasury yield settled largely unchanged at 2.462% after climbing to a nearly three-year high of 2.547% early Monday.

There was $52 million in reported volume about one hour after the market open and $300 million on the tape about one hour before the market close.

Investment-grade convertible notes were in focus with Euronet Worldwide Inc.’s 0.75% convertible notes due 2049 (BBB) and Western Digital Corp.’s 1.5% convertible notes due 2024 seeing the largest volume trades in the secondary space.

Blackstone Mortgage Trust Inc.’s newly priced 5.5% convertible notes due 2027 remained under pressure in active trading with the notes falling further below par.

Investment grade

Investment-grade convertible notes were active during Monday’s session although with little movement in price.

Euronet Worldwide’s 0.75% convertible notes were down slightly on an outright basis alongside stock.

The notes were changing hands at 110.5 versus a stock price of $125.24 early in the session.

However, they traded back up to 111.125 as stock flatlined in the late afternoon.

There was about $13 million in reported volume.

Euronet’s stock traded to a low of $123.98 and a high of $127.47 before closing the day at $125.66, a decrease of 0.40%.

Western Digital’s 1.5% convertible notes due 2024 (Baa3) were also active although largely unchanged.

The notes were wrapped around 96.75 during Monday’s session.

There was about $13 million in reported volume.

Western Digital’s convertible notes are not equity sensitive and trade largely for their yield, which was 3.339% on Monday.

The short-duration notes still offered an attractive yield compared to Treasuries, a source said, with the yield on the two-year Treasury note 2.336% on Monday.

Blackstone day two

Blackstone Mortgage’s 5.5% convertible notes due 2027 remained under pressure in active trading their second day in the secondary space.

The notes were wrapped around 99 heading into the late afternoon, according to a market source.

There was $9 million in reported volume.

Blackstone Mortgage’s stock traded to a high of $32.34 and a low of $31.92 before closing the day at $32.14.

The 5.5% notes also struggled on their secondary debut on Friday with the notes bouncing between 98.5 and par throughout the session.

The coupon on the notes was low compared to the dividend paid on common stock, which historically has a low vol., sources said.

Mentioned in this article:

Blackstone Mortgage Trust Inc. NYSE: BXMT

Euronet Worldwide Inc. Nasdaq: EEFT

Western Digital Corp. Nasdaq: WDC

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