High-grade convertible notes in demand; DexCom rebounds; Rivian hits new outright high

By Abigail W. Adams

Portland, Me., Oct. 17 – The convertibles primary market remained dormant and the secondary quiet on Tuesday with markets mixed as earnings results come in and macro data continues to surprise markets.

Bond yields jumped following the latest retail sales figures, which reflected a 0.7% increase in consumer spending versus the 0.3% expected.

The strength of consumers continued to surprise the market and support bets for a hawkish fed.

It also helped alleviate some recession concerns which have resurfaced in recent weeks.

Equity indexes were mixed on the data with the small cap index outperforming.

The Dow Jones industrial average closed Tuesday up 13 points, or 0.04%, the S&P 500 index closed down 0.01%, the Nasdaq Composite index closed down 0.25% and the Russell 2000 index closed up 1.09%.

Treasury yields were once again approaching multi-decade highs with the 10-year Treasury yield closing Tuesday up 12 basis points to 4.834%.

There was $54 million in reported convertibles trading volume about one hour into the session and $370 million on the tape about one hour before the market close with high-grade names dominating.

Notes improved amid the move in Treasuries.

CenterPoint Energy Inc.’s 4.25% convertible notes due 2026 (Baa2) and Duke Energy Corp.’s 4.125% convertible notes due 2026 (Baa2/BBB) were the high-grade names in focus with the notes largely unchanged outright amid a drop in equity and a widening in spreads.

PPL Corp.’s 2.875% exchangeable notes due 2028 (Baa1/BBB+), among the weakest of the high-grade convertible issuance of 2023, were also stronger in heavy volume.

DexCom Inc.’s convertible notes were also on the rise in active trade as the diabetes and kidney disease treatment sector recovered from the Ozempic inspired sell-off of the previous week.

Rivian Automotive Inc.’s recently priced 3.625% convertible notes due 2030 jumped to their highest outright level since pricing with the notes also strengthening on hedge.

High grade improves

High-grade names continued to dominate the tape on Tuesday with the paper improved across the board as Treasury yields climb.

CenterPoint Energy’s 4.25% convertible notes due 2026 saw the heaviest volume of the session with the notes creeping higher with stock either side of unchanged.

The 4.25% convertible notes were trading at 98.75 versus a stock price of $27.94 in the late afternoon, according to a market source.

The yield was about 4.75%.

There was $26.5 million in reported volume.

CenterPoint Energy’s stock traded to a low of $27.58 and a high of $28 before closing at $27.94, an increase of 0.58%.

Duke Energy’s 4.125% convertible notes due 2026 were largely unchanged outright with equity in the red.

The 4.125% notes were changing hands at 97.5 versus a stock price of $89.56 early in the session and 97.625 in the late afternoon.

The yield was about 5.125%.

There was $19 million in reported volume.

Duke Energy’s stock traded to a high of $89.76 and a low of $88.48 before closing at $88.96, off 0.56%.

DexCom rises

DexCom’s convertible notes were on the rise in active trade as the diabetes and kidney treatment sector recovered from the sell-off the previous week.

DexCom’s 0.375% convertible notes due 2028 gained about 0.5 point outright with stock up more than 2%.

The notes were trading just shy of 85.5 versus a stock price of $81.65 in the late afternoon, according to a market source.

There was $15 million in reported volume.

DexCom’s 0.25% convertible notes due 2025 were up almost 2 points outright.

They were trading at 93.125 in the late afternoon.

There was $5 million in reported volume.

Both tranches were trading with a yield of about 3.875%.

DexCom’s stock traded to a low of $76.81 and a high of $82.56 before closing at $80.49, up 1.95%.

The heavily busted convertible notes trade on a light delta and were spared from the brunt of the sell-off in diabetes treatment companies the previous week.

While news Ozempic showed promise as a treatment for kidney disease sparked widespread selling, several names have been on the rebound over the past two sessions.

DexCom’s convertible notes are now trading at their levels prior to the Ozempic news.

Rivian’s new heights

Rivian’s 3.625% convertible notes due 2030 hit their highest outright level since pricing and improved on hedge as stock continued to pare the losses incurred since the convertible notes offering launched.

The 3.625% convertible notes gained 2.5 points outright with stock up a little more than 1% early in the session.

They were trading at 106.25 versus a stock price of $19.73 early in the session, according to a market source.

The convertibles gave back some early gains as the session progressed and were changing hands at 105.625 versus a stock price of $19.95 in the late afternoon.

There was $6 million in reported volume.

Rivian’s 4.625% convertible notes due 2029 gained 1.5 points outright to trade just shy of 123 versus a stock price of $19.73 early in the session.

There was also $2 million in reported volume.

Rivian’s stock traded to a low of $19.21 and a high of $20.22 before closing at $19.90, up 1.22%.

Rivian’s stock is now trading above the convertible notes’ stock reference price and has pared its losses since plunging 22% on the heels of launching its convertible notes offering.

However, stock is still down 15% since the convertible offering was announced.

Mentioned in this article:

CenterPoint Energy Inc. NYSE: CNP

DexCom Inc. Nasdaq: DXCM

Duke Energy Corp. NYSE: DUK

PPL Corp. NYSE: PPL

Rivian Automotive Inc. Nasdaq: RIVN

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