Morning Commentary: Snap does U-turn, convertible notes jump following earnings

By Abigail W. Adams

Portland, Me., Feb. 4 – It was another volatile day in the convertibles secondary space with equity markets mixed following the latest batch of earnings.

While the tech sector led losses during Thursday’s session, it was the sole index in positive territory about one hour into Friday’s session after Amazon’s earnings smashed analyst expectations.

The Dow Jones industrial average was down 306 points, or 0.87%, the S&P 500 index was down 0.45%, the Nasdaq Composite index was up 0.30% and the Russell 2000 index was down 0.28% shortly before 11 a.m. ET.

Optimism surrounding the latest set of earnings was overshadowed by a strong jobs report, which supported a hawkish move in monetary policy and a surging 10-year Treasury yield that dragged down markets.

The 10-year treasury yield crossed the 1.9% threshold and was 1.938% shortly before 11 a.m. ET.

Snap Inc.’s convertible notes pulled a U-turn and skyrocketed on an outright basis alongside stock after earnings bested analyst expectations.

The 0% convertible notes due 2027 jumped 5.75 points outright with stock up more than 40%.

They were changing hands at 89 versus a stock price of $37.92 early in the session, according to a market source.

There was $10 million in reported volume.

Snap’s 0.75% convertible notes due 2026 shot up more than 30 points outright.

The notes were changing hands at 180.5 versus a stock price of $37.40.

There was $16 million in reported volume.

Snap’s stock was trading at $35.25, an increase of 43.88%, shortly before 11 a.m. ET.

The 0% notes sank to an 83-handle during Thursday’s session and the 0.75% notes fell 18 points and contracted 0.5 point dollar-neutral as stock cratered in anticipation of disappointing earnings following Meta Platforms Inc.’s, formerly known as Facebook Inc., results.

However, Snap surprised the market with its first profitable quarter on a net income basis since going public.

Snap reported earnings per share of 22 cents versus analyst expectations for earnings of 10 cents. Revenue was $1.3 billion versus analyst expectations for revenue of $1.2 billion.

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