Morning Commentary: Convertibles quiet as equities plummet; Southwest Airlines active

By Abigail W. Adams

Portland, Me., June 16 – It was a quiet morning in the convertibles secondary space as equity and credit markets plunged after further digesting Wednesday’s 75 basis point rate increase and comments from Federal Reserve chair Jerome Powell.

The Dow Jones industrial average was down 850 points, or 2.77%, the S&P 500 index was down 3.45%, the Nasdaq Composite index was down 4.24% and the Russell 2000 index was down 4.52% shortly before 11 a.m. ET.

The convertibles secondary space was quiet amid the carnage in equities with $44 million on the tape about one hour into the session.

While the overall market was quiet, Southwest Airlines Co.’s 1.25% convertibles due 2025 (Baa1/BBB) remained active with the notes dropping outright alongside stock.

The 1.25% notes were down 3.75 points outright with stock off 4% early in the session.

The notes were changing hands at 118 versus a stock price of $35.63 early in the session.

There was $5 million in reported volume.

Southwest’s stock was seen at $35.65, a decrease of 4.24%, shortly before 11 a.m. ET.

The 1.25% convertible notes have seen heavy volume as Southwest’s stock has fallen almost 14% in the last five sessions.

The notes are investment-grade and balanced convertibles, which will attract buyers. However, with the move in stock “people are probably just puking them out,” a source said.

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