Risk on in secondary; Tesla convertibles dominate; Illumina, Microchip notes active

By Abigail W. Adams

Portland, Me., Jan. 14 – The convertibles secondary market saw massive trading volume on Tuesday with the market firm across the board, sources said.

The secondary space in general was up 0.25 to 0.5 point. “It’s a risk-on type of day,” a market source said.

There was more than $370 million in reported volume less than one hour into the session and $640 million heading into the market close.

Estimated volume exceeded $1.5 billion.

With equity markets setting records as the signing of the phase I trade deal with China approaches, market players were setting up volatility trades, a market source said.

There was decent buy volume in low-premium, high-dollar names, the source said.

While there was a wide dispersion to the trading activity, one name topped the volume charts – Tesla Inc.

Tesla’s convertible notes continued their expansion as stock continued to surpass expectations.

With the J.P. Morgan health care conference under way in San Francisco, there was also solid activity in the biotech sector, sources said.

Illumina Inc.’s 0% convertible notes due 2023 saw decent trading volume on the heels of a new announced partnership with Roche Holding AG.

Tuesday was also a strong day for semiconductors with Microchip Technology Inc.’s convertible notes active on the tape.

Twitter Inc.’s 0.25% convertible notes due 2024 also improved during Tuesday’s session.

Tesla in focus

Tesla’s convertible notes dominated activity in the secondary space with the three tranches seeing more than $250 million in estimated volume collectively.

The notes “were all over the place,” as stock traded off its highs, a market source said.

However, the bonds were all starting to trade “at crazy prices,” the source said.

They continued to improve dollar-neutral as they have since Tesla stock began its run. The notes were up another 0.125 to 0.25 point dollar-neutral, a source said.

Tesla’s 2% convertible notes due 2024 were the most active of the tranches.

The bonds were changing hands at 187.415 versus a stock price of $540.00 in the mid-afternoon, according to a market source.

The tranche saw more than $133 million in estimated volume.

The bonds will switch into different hands as they approach double par, a source said.

Tesla’s 1.25% convertible notes due 2021 rose to 157 versus a stock price of $540.00. There was more than $58 million in estimated volume.

The 2.375% convertible notes due 2022 were changing hands at 176.125 versus a stock price of $540.00 with more than $56 million in estimated volume.

Tesla stock continued its massive run on Tuesday.

Stock traded as high as $547.41 after ripping past $500.00 for the first time on Monday.

Stock traded to a low of $524.90 before closing the day at $537.92, an increase of 2.49%.

“A lot of people are making a lot of money off of Tesla,” a market source said.

Illumina’s partnership

Illumina’s 0% convertible notes due 2023 were active on Tuesday although the notes were largely trading sideways.

The 0% convertible notes were changing hands at 110.25 with more than $23 million in estimated volume by the late afternoon, according to a market source.

The bonds were also active on Monday after Illumina presented at the health care conference.

Illumina announced a new 15-year partnership with Roche to increase the availability of diagnostic tests using its sequencing systems and for the detection of cancer.

Illumina stock traded as high as $325.49 before closing the day at $317.105, a decrease of 1.87%.

Microchip active

Microchip’s convertible bonds were also active on Tuesday.

The 1.625% convertible bonds due 2027 were changing hands at 148.375 versus and equity price of $110.52 with about $35 million in estimated volume.

The 1.625% convertible bonds due 2025 were changing hands at 227.5 versus an equity price of $110.45.

Microchip stock closed Tuesday at $110.12, a decrease of 0.98%.

There was also a large seller in the market for Twitter’s 0.25% convertible notes due 2024, a source said.

The 0.25% notes rose about 0.375 point on a dollar-neutral basis, a market source said.

The notes were changing hands at 98.25 versus an equity price of $32.79.

Stock closed Tuesday at $32.82, an increase of 0.4%.

Mentioned in this article:

Illumina Inc. Nasdaq: ILMN

Microchip Technology Inc. Nasdaq: MCHP

Tesla Inc. Nasdaq: TSLA

Twitter Inc. NYSE: TWTR

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