Convertibles trade a bit firmer in light volume as stocks reverse; primary market quiet

By Rebecca Melvin

New York, Oct. 9 – Convertibles were somewhat firmer in light volume as equities mounted a reversal to the upside on Wednesday.

The primary market remained quiet.

The issues that traded most actively included Western Digital Corp.’s 1.5% convertibles due 2024, which traded at 92.25, with shares of the San Jose, Calif.-based computer and storage company up almost 2% to $56.53; and Meridian, Colo.-based DISH Network Corp.’s 3.375% convertibles due 2026, which were down an eighth of a point to 90.375 as the underlying shares gained almost 2% to $32.68 on the day.

The convertibles of Chinese companies with American Depositary Shares were leading the market rally due to hopeful trade headlines, a New York-based market source said.

Optimism returned that there would be some form of a trade deal to come from U.S.-China talks set to begin on Thursday as Bloomberg News reported that China is prepared to accept a partial trade deal as long as no more tariffs are imposed.

Pinduoduo Inc.’s 0% convertibles due 2024 traded up more than a point to 101.6, according to Trace data.

Shares of the China e-commerce company were up 53 cents, or 1.7%, at $31.78.

IQIYI Inc.’s 2% convertibles due 2025 traded at 87.32. The underlying shares of the $1.2 billion issue that priced in March were at $15.74. The shares were up on the day but still near their lows for the year to date. The Beijing-based company is an online entertainment service provider.

Okta Inc. was also an active trader and those bonds were up about a point outright to 97.4, according to Trace data.

“On the margin, names are better to buy,” a second New York-based market source said of Wednesday’s session.

Market players added selectively while looking ahead to earnings season to provide the next catalysts for trade.

The bulk of earnings reports for convertible issuers is still three weeks away, however, the second source said, pointing instead to the “lull in new issuance” that has helped stabilize valuations. And “things seem a bit firmer as investors are stepping back in selectively to add.”

The other market source said that the convertibles market was a touch firmer as hedge accounts look to be long vol. going into earnings season.

Other names seen in trade included Zendesk Inc.’s 0.25% convertibles due 2023, which changed hands again on Wednesday at the same pricing as on Tuesday when the bonds of the San Francisco-based customer service software company dropped a point or two. The $500 million Zendesk deal priced in March 2018.

The Zendesk bonds were last at 132.55, with the underlying shares moving higher to $73.50 last, which was up $1.09, or 1.5%, on the day.

GoPro Inc.’s 3.5% convertibles due 2022 also dropped a point or two on Tuesday with those bonds changing hands at 94.625. The bonds didn’t see any follow through action on Wednesday, according to Trace data, as shares slipped another 0.5% to $3.42.

The move in shares of the San Mateo, Calif.-based action camera company extended Tuesday’s downturn.

In the broader markets, the Nasdaq Composite rose 79.96 points, or 1%, to 7,903.74; the Dow Jones industrial average gained 181.97 points, or 0.7%, to 26,346.01; and the S&P 500 recouped 26.34 points, or 0.9%, to 2,919.40.

Mentioned in this article:

DISH Network Corp. Nasdaq: DISH

GoPro Inc. Nasdaq: GPRO

IQIYI Inc. Nasdaq: IQ

Okta Inc. Nasdaq: OKTA

Pinduoduo Inx. NYSE: PDD

Western Digital Corp. NYSE: WDC

Zendesk Inc. NYSE: ZEN

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