Morning Commentary: Zendesk convertible notes in focus early as company explores sale

By Abigail W. Adams

Portland, Me., April 19 – It was a relatively quiet morning in the convertibles secondary space on Tuesday despite a strong start for equity markets.

Equity indexes opened the day with strong gains despite a 10-year Treasury yield that topped 2.9% for the first time since 2018.

The Dow Jones industrial average was up 384 points, or 1.11%, the S&P 500 index was up 1.28%, the Nasdaq Composite index was up 1.68% and the Russell 2000 index was up 1.82% shortly before 11 a.m. ET.

However, sources questioned whether the rally would last.

The 10-year Treasury yield was up 5.5 basis points to 2.917% after hitting 2.93% early in the session.

There was $67 million in reported convertibles trading volume about one hour into the session with one name accounting for almost one quarter of the volume on the tape.

Zendesk Inc.’s 0.625% convertibles due 2025 dominated activity in the secondary space following news the company was exploring a potential sale.

The 0.625% convertible notes gained 3.5 points outright with stock up about 6%.

The notes were changing hands at 132.375 versus a stock price of $127.92 early in the session.

There was $15 million in reported volume.

Zendesk’s stock was trading at $129.35, an increase of 6.3%, shortly before 11 a.m. ET.

Zendesk was in focus on news the company had hired advisers to explore a potential sale.

Zendesk has long been the center of takeover speculation with the company currently engaged in a proxy battle with activist investor Jana Partners, who has pushed for a sale of the company.

Zendesk’s convertible notes were active in early April after shareholder Light Steet’s founder Glen Kacher said in an interview the software company was an attractive target that may be worth $180 to $200 a share.

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