Morning Commentary: Tech names active as equities tank; Tilray yield to maturity tops 9%

By Abigail W. Adams

Portland, Me., Oct. 23 – The convertibles space saw a burst of activity early Tuesday with technology names leading the charge as equity markets tanked and volatility spiked.

There was $67 million of convertible notes on the tape less an hour into Tuesday’s session.

Micron Technology Inc.’s 3% convertible notes due 2043 led trading volume early in the session with the heavily hedged, equity-sensitive convertible notes active as stock dropped more than 5%.

The 3% notes traded down about 7 points outright to trade at 126.625 early Tuesday, a market source said.

More than $8 million bonds had traded less than an hour into the session.

Micron stock dropped more than 5% to $37.63 early Tuesday.

Stock was dropping alongside the broader markets as investors responded to the earnings of key blue chip companies with a sell-off.

The Dow Jones industrial average plummeted as much as 500 points after the market open before paring its losses to a 385 point drop shortly before 11 a.m. ET.

The tech heavy Nasdaq was down 160 points, or 2.15%, and the Philadelphia semiconductor index was down 37 points, or 3.07%.

However, the CBOE Volatility index shot up more than 22% early Tuesday.

Illumina Inc.’s 0.5% convertible notes due 2019 were also active early Tuesday with more than $5 million on the tape.

The notes were changing hands at 131.5 versus a stock price $303.16, a market source said.

Illumina stock was trading down more than 4% in the run up to the biotech company’s third-quarter earnings report, which is expected after the market close.

The cannabis sector remained under pressure on Tuesday with Tilray Inc.’s 5% convertible notes due 2023 sinking to their lowest outright price since hitting the market in early October.

The 5% convertible notes were seen changing hands at 83.5 early Tuesday with stock again down double digits.

The yield to maturity on the notes is now 9.3% and the premium 30%, making them now an interesting play for outright players, a market source said.

Stock was down 11% to 109 early Tuesday.

However, the notes remain unattractive to hedge players with the borrow rate on the stock “outrageous,” a market source said. At negative 57%, the rate “is the highest I’ve seen,” the source said.

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