Southwest Airlines convertibles dominate; Royal Caribbean under pressure; Shopify active

By Abigail W. Adams

Portland, Me., Sept. 30 – The convertibles secondary space saw a quiet end to another brutal quarter with accounts closing their books at the lows of the year.

The market is poised to end 2022 with historic losses with outright accounts down more than 20% and hedge accounts down more than 11% year to date, sources said.

Interest rate and equity volatility continued to whipsaw traders with valuations all over the place as the market rallied and plunged on a daily and intraday basis, a source said.

“This market is insane,” a source said. “Hopefully it’ll figure out what it wants to do.”

The intraday volatility persisted on the final day of the third quarter with equity indexes launching the day strong but succumbing to selling pressure midway through the session and closing with losses.

The Dow Jones industrial average closed Friday down 500 points, or 1.71%, the S&P 500 index closed down 1.51%, the Nasdaq Composite index closed down 1.51% and the Russell 2000 index closed down 0.61%.

Convertibles trading activity was relatively light with few notable movements in the space.

Southwest Airlines Co.’s 1.25% convertibles due 2025 (Baa1/BBB) continued to dominate the tape although with little change to price.

Royal Caribbean Group’s 6% convertible notes due 2025 saw the largest price movement with the notes down on an outright and dollar-neutral basis as stock cracked following Carnival’s earnings.

Shopify Inc.’s 0.125% convertible notes due 2025 continued to see action although with little change to price.

Liquidity trade

Southwest’s 1.25% convertible notes due 2025 continued to dominate the tape although with little movement in price.

The notes were trading at 115 in heavy volume early in the session with stock in the red.

While volume in the name petered out as the session progressed, the notes fell to 114 as stock continued to decline heading into the close.

However, the notes were unchanged dollar-neutral, a source said.

Southwest’s stock traded to a high of $31.61 and a low of $30.79 before closing the day at $30.84, a decrease of 2.59%.

Southwest’s convertible notes are once again at the top of the volume charts, a position they held on a near daily basis amid the market rout in June and early July.

The activity in the name is most likely just liquidity trades with Southwest a large, liquid issue.

Royal Caribbean pressured

Royal Caribbean’s 6% convertible notes due 2025 were under pressure on Friday as stock cracked following disappointing earnings results from Carnival Corp.

The 6% convertible notes were down almost 9 points outright with stock off more than 13%.

The notes were changing hands at 107.5 early in the session.

They continued to trade down with the notes wrapped around 105.5 heading into the market close.

While the notes improved on hedge early in the session, they were seen weaker dollar-neutral in the afternoon.

Royal Caribbean’s stock traded to a high of $41.94 and a low of $37.72 before closing the day at $37.90, a decrease of 13.17%.

Shopify active

Shopify’s 0.125% convertible notes due 2025 continued to see some action in the secondary space although with little movement in price.

The 0.125% notes remained wrapped around 82.5 with the yield about 6.5%, according to a market source.

Shopify’s stock traded to a high of $28.14 and a low of $26.38 before closing the day at $26.94, an increase of 0.60%.

The notes have been active in recent sessions, a source said.

Mentioned in this article:

Royal Caribbean Group NYSE: RCL

Shopify Inc. NYSE: SHOP

Southwest Airlines Co. NYSE: LUV

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.