Northern Oil convertibles rise; yield plays dominate the tape; Western Digital active

By Abigail W. Adams

Portland, Me., Oct. 13 – It was a relatively quiet day in the convertibles secondary space as equity markets whipsawed from large losses to large gains after the latest inflation reading.

Indexes opened deep in the red as the latest Consumer Price Index report solidified the market’s expectation for an additional 75 basis point rate increase in November.

However, indexes roared after the close of the European markets with U.K. markets on the mend as lawmakers discuss dialing back the stimulus package that sparked turmoil.

The Dow Jones industrial average closed up 828 points, or 2.83%, the S&P 500 index closed up 2.6%, the Nasdaq Composite index closed up 2.23% and the Russell 2000 index closed up 2.41%.

There was $53 million on the tape about one hour into the session and $410 million on the tape heading into the market close.

Northern Oil and Gas Inc.’s 3.625% convertible notes due 2029 remained active with the notes continuing to add to their outright and dollar-neutral gains.

Yield plays also saw heavy volume with Western Digital Corp.’s 1.5% convertible notes due Feb. 1, 2024 (Baa3) and Illumina Inc.’s 0% convertible notes due Aug. 18, 2023 (BBB) among the most actively traded issues in the space although with little movement in price.

Hannon Armstrong Sustainable Infrastructure Capital Inc.’s convertible notes also saw heavy volume.

Northern Oil better

Northern Oil’s 3.625% convertible notes due 2029 continued to add to their outright and dollar-neutral gains in active trade on Thursday.

The notes were up about 0.5 point outright with stock in the red as selling pressure gripped the market early in the session.

The notes were seen at 104.875 versus a stock price of $31.06 about one hour after the opening bell.

The notes continued to climb outright as stock shot into positive territory with the notes changing hands at 107.625 versus a stock price of $32.79 in the late afternoon.

The notes continued to push out on a dollar-neutral basis, a source said.

There was $18 million in reported volume.

Northern Oil’s stock traded to a low of $30.41 and a high of $33.29 before closing the day at $33.27, a decrease of 6.6%.

Yield plays

Short-duration, high-yield notes were active on the tape on Thursday as Treasury yields soared on the heels of the CPI report.

Western Digital’s 1.5% convertible notes due Feb. 1, 2024 and Illumina’s 0% convertible notes due Aug. 18, 2023 saw heavy volume although with little movement in price.

Western Digital’s 1.5% notes were changing hands just shy of 95 with a yield of 5.625% early in the session – a level they maintained throughout the session.

There was $16 million in reported volume with the majority of activity occurring in four trades, a source said.

Illumina’s 0% convertible notes due 2023 were trading at 96.25 with a yield of 4.7% in the late afternoon, a source said.

There was $15 million in reported volume.

Hannon Armstrong’s short-duration and longer-duration convertible notes were also active.

Hannon’s 0% convertible notes due 2025 were seen at 85.75 with the yield just north of 10.125%, a source said.

The soon-to-mature 0% convertible notes due Aug. 15, 2023 were changing hands at 93.125 with a yield of 8.625%.

Both tranches saw about $8 million in reported volume.

The names that dominated the tape on Thursday were yield plays, a source said.

Rising rates sparked activity in names that have long traded for their yield.

While the issues were largely unchanged, their yields looked less attractive on Thursday as the market priced in a 75 bps rate increase in November, a source said.

The two-year Treasury note and one-year Treasury bill both traded above 4.5% on Thursday, although they settled just shy of the threshold.

Mentioned in this article:

Hannon Armstrong Sustainable Infrastructure Capital Inc. NYSE: HASI

Illumina Inc. Nasdaq: ILMN

Northern Oil and Gas Inc. NYSE: NOG

Western Digital Corp. Nasdaq: WDC

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