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Morning Commentary: Convertibles secondary lethargic; airlines active pre-Delta earnings
By Abigail W. Adams
Portland, Me., July 12 – It was another quiet start to the day in the convertible secondary space with few names on the tape on a choppy start to equity markets.
Indexes were again wavering between gains and losses early in the session and were mixed shortly before 11 a.m. ET.
The Dow Jones industrial average was up 90 points or 0.29%, the S&P 500 index was down 0.02%, the Nasdaq Composite index was down 0.14% and the Russell 2000 index was up 0.22% shortly before 11 a.m. ET.
While equities were again negative on Tuesday, the market appeared to be in a consolidation phase with no strong conviction, a source said.
The lack of conviction in risk assets was evident in the thin volume in the convertibles space with few accounts making moves despite the large yields busted convertible notes were offering.
There was $68 million in reported volume about one hour into the session with Southwest Airlines Co.’s 1.25% convertibles due 2025 (Baa1/BBB) accounting for the lion’s share of activity on the tape.
The 1.25% notes gained 2.5 points outright with stock up 4% early in the session.
The notes were trading at 123.75 versus a stock price of $38.28.
There was $14 million in reported volume.
Southwest stock was changing hands at $38.43, an increase of 4.35%, shortly before 11 a.m. ET.
American Airlines Group Inc.’s 6.5% convertible notes due 2025 also saw some activity with industry peer Delta Air Lines Inc. set to report earnings on Wednesday.
The 6.5% notes jumped 4 points outright with stock up 9% early in the session.
They were changing hands at 114.5 versus a stock price of $14.36.
However, volume was light with only $2 million in reported volume.
American stock was changing hands at $14.76, an increase of 10.13%, shortly before 11 a.m. ET.
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