Wayfair convertible notes continue to skyrocket; short-duration yield plays on the tape

By Abigail W. Adams

Portland, Me., Jan. 23 – The convertibles primary market remained dormant on Monday as equities marked another strong session.

While no deals materialized on Monday, a pickup in activity is expected as issuers exit their blackout period.

Meanwhile, Wayfair Inc. remained the name of the day on Monday with its stock and convertible notes continuing to skyrocket as the home decor e-commerce company embarks on a cost-cutting campaign.

Equity markets extended their gains on Monday with the Dow Jones industrial average closing up 254 points, or 0.76%, the S&P 500 index closing up 1.19%, the Nasdaq Composite index closing up 2.01% and the Russell 2000 index closing up 1.27%.

There was $100 million in reported volume about one hour into the session and $585 million on the tape about one hour before the market close with Wayfair’s three tranches of convertible notes responsible for the lion’s share of trading activity in the space.

The short-duration yield play was also in effect on Monday with Illumina Inc.’s soon-to-mature 0% convertible notes due Aug. 18, 2023 (BBB) and Western Digital Corp.’s 1.5% convertible notes due Feb. 1, 2024 (Baa3) seeing heavy volume.

Wayfair shines

After surging on an outright and dollar-neutral basis on Friday, Wayfair’s convertible notes continued their meteoric rise on Monday as stock logged its second consecutive day of 20% gains.

Wayfair’s 3.25% convertible notes due 2029 were the most actively traded issue in the secondary space with the notes jumping another 17 points outright.

The notes were changing hands at 115.5 versus a stock price of $58.10 early in the session, a source said.

They were trading at 116.625 versus a stock price of $58 in the late afternoon.

The notes expanded another 1.5 points to 2 points dollar-neutral.

There was $55 million in reported volume.

The 3.25% notes jumped 17 points outright and about 3.25 points dollar-neutral on Friday.

Friday’s session marked the first time the notes crossed above par since shortly after pricing in September.

Wayfair’s 0.625% convertible notes due 2025 gained another 3 points outright.

The notes were trading at 78 versus a stock price of $58.22 early in the session, according to a market source.

They were changing hands at 78.5 in the late afternoon.

The yield fell to just shy of 10%.

There was $24 million in reported volume.

The 0.625% notes gained 4 points outright and 4.5 points dollar-neutral on Friday.

Wayfair’s 1% convertible notes due 2026 rose another 5.5 points outright.

The notes were seen at 76 versus a stock price of $58.95 early in the session.

They traded as high as 77 in intraday activity but fell back to 76 heading into the market close.

The yield fell to 9%.

There was $37 million in reported volume.

The notes gained 8 points outright and 6 points on hedge, the greatest dollar-neutral expansion of Wayfair’s tranches, on Friday.

Wayfair’s stock traded to a low of $53.28 and a high of $59.68 before closing Monday at $59.33, an increase of 26.8%.

Stock also shot up 20% on Friday with the company joining the chorus of tech companies announcing layoffs as a cost-saving measure.

Short duration

The short-duration yield play was in effect on Monday with investment-grade notes approaching their maturity the most active names.

Illumina’s 0% convertible notes due Aug. 18, 2023 were little changed in heavy volume.

The notes were wrapped around 97 with a yield of 5.46%, according to a market source.

There was $22 million in reported volume.

The notes have been actively switching hands as their maturity has approached.

Western Digital’s 1.5% convertible notes due Feb. 1, 2024 also saw heavy volume as their maturity approaches.

The notes were seen in the 95.5 to 96 context with a yield of 5.625% to 6%.

There was $12 million in reported volume.

Mentioned in this article:

Illumina Inc. Nasdaq: ILMN

Wayfair Inc. NYSE: W

Western Digital Corp. Nasdaq: WDC

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