Morning Commentary: Tax bill, inflation, Workday, Lam Research and Square

By Abigail W. Adams

Portland, Me., Nov. 30 – With the Senate tax bill set to go to a vote late Thursday or Friday and Treasury yields on the rise after the Federal Reserve’s release of the PCE index, macro factors continue to weigh on the mind of the convertible market space.

The Treasury’s 10-year note and 30-year bond increased a basis point on Thursday after the Bureau of Economic Affairs reported that personal consumption expenditures rose 0.1% in October and the core index rose 0.2%.

Despite lower than target inflationary figures, the Federal Reserve is signaling it will increase interest rates in December.

The Senate may soon vote on its version of the GOP tax plan after clearing a procedural hurdle on Wednesday to bring the bill to a floor vote.

The tax plan includes lowering the corporate tax rate to 20% and scaling back deductions for corporate interest expenses.

Reducing corporate interest deductions may help spur new issuances of convertible bonds, which may become more attractive to corporations than high-yield bonds if the proposal is successful, a market source said.

Active trading of Workday Inc.’s 0.25% convertible notes due 2022 and Square Inc.’s 0.375% due 2022 continued on Thursday as the bonds moved lock-in step with their underlying equity.

After a two-week rise, Workday’s 0.25% notes slipped below par and were trading in the 98 to 99 range as company stock decreased 1.87% to $104.55 in early trades.

After losing 14 points on Wednesday, Square’s 0.375% note regained some ground and was trading up 4 points to 183, as company stock was up 3.44% to $40.48 in early trades.

Lam Research Corp.’s 2.65% convertible notes due 2041 were off to a rocky start as the notes traded at 582 early in the session, a 52 point decrease from Wednesday’s closing trade of 634.37, according to Trace data.

The notes were trading between 573 and 584 on Wednesday prior to the closing trade. After taking a hit from a Morgan Stanley report that questioned the future growth potential of semiconductor companies, Lam stock rebounded slightly and was up 0.40% to 195.42 in early trading.

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