Morning Commentary: High-grade convertible notes in focus as yields hit new heights

By Abigail W. Adams

Portland, Me., Oct. 3 – It was a quiet start to the day in the convertibles secondary space on Tuesday with the market heavy as selling hit equities as Treasury yields hit multi-decade highs.

The Dow Jones industrial average was down 341 points, or 1.03%, the S&P 500 index was down 1.3%, the Nasdaq Composite index was down 1.68% and the Russell 2000 index was down 1.54% shortly before 11 a.m. ET.

The two-year Treasury yield hit 5.144% and the 10-year yield hit 4.75% early in the session.

There was $62 million in reported volume about one hour into the session with activity concentrated in high-grade names.

American Water Capital Corp.’s 3.625% exchangeable senior notes due 2026 (Baa1/A) and Southern Co.’s 3.875% convertible notes due 2025 (Baa2/BBB) were the high-grade names of the day.

The notes were performing well in the heavy volume with the notes unchanged outright with their equity under pressure.

American Water’s 3.625% exchangeable notes were changing hands at 95.875 versus a stock price of $118.54 early in the session, according to a market source.

There was $10 million in reported volume.

American Water’s stock was trading at $115.65, a decrease of 2.91%, shortly before 11 a.m. ET.

Southern Co.’s 3.875% convertible notes were trading at 96.5 versus a stock price of $62.09, a source said.

There was $6.5 million in reported volume.

Southern Co.’s stock was seen at $62.39, a decrease of 0.49%, shortly before 11 a.m. ET.

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