Morning Commentary: High-grade convertible notes in focus early, continue to improve

By Abigail W. Adams

Portland, Me., Oct. 18 – There was an uptick of activity in the convertibles secondary space on Wednesday with high-grade names in demand amid the downturn in equities and Treasuries.

Equity indexes were heavy and Treasury yields hovered near multi-decade highs as markets once again reassessed their rate hike expectations.

The Dow Jones industrial average was down 149 points, or 0.44%, the S&P 500 index was down 0.64%, the Nasdaq Composite index was down 0.83% and the Russell 2000 index was down 1.07% shortly before 11 a.m. ET.

There was $89 million in reported convertibles trading volume about one hour into the session with the top three names on the tape accounting for almost one-half of the total volume.

“Surprise, they’re all investment grade,” a source said.

Duke Energy Corp.’s 4.125% convertible notes due 2026 (Baa2/BBB), CenterPoint Energy Inc.’s 4.25% convertible notes due 2026 (Baa2) and American Water Capital Corp.’s 3.625% exchangeable senior notes due 2026 (Baa1/A) were the names in focus early Wednesday.

High-grade issues remained in demand amid the uncertainty in the market, a source said.

Duke’s 4.125% convertible notes due 2026 remained wrapped around 97.5 with stock weak.

The yield was about 5.125%.

There was $16.5 million in reported volume.

Duke Energy’s stock traded down to $88.50, a decrease of 0.52%, shortly before 11 a.m. ET.

American Water’s 3.625% convertible notes due 2026 were unchanged outright with stock down more than 1%.

They continued to trade around 96.75 versus an equity price of $119.36.

The yield was just shy of 5%.

There was $14 million in reported volume.

American Water’s stock was trading at $117.73, a decrease of 2.14%, shortly before 11 a.m. ET.

CenterPoint Energy’s 4.25% convertible notes due 2026 were also unchanged with equity weak.

The notes were changing hands at 98.75 versus a stock price of $28, according to a market source.

The yield was about 4.75%.

There was $10 million in reported volume.

CenterPoint Energy’s stock traded down to $27.65, a decrease of 1.04%.

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