Morning Commentary: PPL convertible notes in focus, hit recent high; secondary quiet

By Abigail W. Adams

Portland, Me., March 27 – The convertibles secondary space launched the final trading week of the quarter quietly albeit with an improved tone.

News of First Citizens Bancshares’ acquisition of Silicon Valley Bank sparked a rebound in bank sector stocks and helped lift investor sentiment.

However, uncertainty remained as the bond market and the Federal Reserve signal a polar opposite trajectory of rates.

Equity indexes launched Monday’s session strong but quickly came in with the Nasdaq Composite index falling into negative territory.

The Dow Jones industrial average was up 136 points, or 0.42%, the S&P 500 index was up 0.20%, the Nasdaq Composite index was down 0.13% and the Russell 2000 index was up 0.69% shortly before 11 a.m. ET.

There was $41 million in reported volume about one hour into the session with investment-grade issues continuing to attract buyers.

PPL Capital Funding Inc.’s 2.875% convertible notes due 2028 (Baa1/BBB+) continued their upward momentum with the notes trading at their highest outright level since pricing in late February.

The 2.875% notes rose 0.5 point outright.

The notes were changing hands in the 98.875 to 99.125 context early in the session.

There was $8 million in reported volume.

PPL’s stock was seen at $27.09, an increase of 1.16%, shortly before 11 a.m. ET.

PPL’s 2.875% convertible notes due 2028 were the first of a wave of three investment-grade convertible notes to price in late February.

The $1 billion issue, which priced at par on Feb. 21, initially played to strong demand and was well received on its aftermarket debut.

However, the deluge of investment-grade issuance and the shockwaves in financial markets following Silicon Valley Bank’s collapse sent the notes spiraling down to a 96-handle.

PPL’s 2.875% convertible notes have been the underperformer of the recent IG issuance, which sources attributed to their low coupon and longer duration compared to Southern Co.’s 3.875% convertible notes due 2025 (Baa2/BBB) and Alliant Energy Corp.’s 3.875% convertible notes due 2026 (BBB+).

However, the notes have been on a strong uptrend since last week with the widening of credit spreads making the paper more attractive.

PPL’s trading level on Monday was its highest outright level since February.

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