Morning Commentary: High-grade convertible notes in focus in early secondary trading

By Abigail W. Adams

Portland, Me., Feb. 6 – While the convertibles primary market remained dormant on Tuesday, there was an uptick of activity in the secondary space with markets stabilizing after a heavy start to the week.

Equity indexes were either side of unchanged on a flat open for Treasuries as markets further digested Federal Reserve chair Jerome Powell’s comments that signaled an overshoot in market expectations for rate cuts.

The Dow Jones industrial average was up 101 points, or 0.26%, the S&P 500 index was down 0.05%, the Nasdaq Composite index was down 0.11% and the Russell 2000 index was up 0.60% shortly before 11 a.m. ET.

There was $128 million in reported volume about one hour into the session with high-grade names dominating the tape.

American Water Capital Corp.’s 3.625% exchangeable senior notes due 2026 (Baa1/A), Welltower Inc.’s 2.75% convertible notes due 2028 (Baa1/BBB+) and Southern Co.’s 3.875% convertible notes due 2025 (Baa2/BBB) were the names in play early Tuesday.

While active, there was little movement in price.

American Water’s 3.625% exchangeable notes due 2026 were trading at 98.125 versus a stock price of $122.07 early in the session, according to a market source.

There was $18 million in reported volume.

American Water’s stock was trading at $122.34, an increase of 0.67%, shortly before 11 a.m. ET.

Welltower’s 2.75% convertible notes due 2028 were seen at 108 versus a stock price of $87.24.

There was $14 million in reported volume.

Welltower’s stock was trading at $87.16, up 0.75%.

Southern Co.’s 3.875% convertible notes due 2025 were trading at 98.75 versus a stock price of $66.99.

There was $15 million in reported volume.

Southern Co.’s stock was changing hands at $67.33, up 0.22%.

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