Morning Commentary: Convertibles primary market in focus; Airbnb notes retest lows

By Abigail W. Adams

Portland, Me., June 14 – The convertibles secondary space stood poised for more volatility on Tuesday with equity markets choppy as the Federal Open Market Committee meeting kicks off.

Expectations for the Federal Reserve’s rate hike schedule have been revised drastically over the past two weeks with expectations for a pause in the second half of the year giving way to renewed expectations for a 75 basis point rate increase to be possibly announced on Wednesday.

The spectacular late-May rally in credit and equity markets gave way to a spectacular sell-off following the latest Consumer Price Index report.

The continued volatility in equities combined with a fast-approaching earnings season blackout have stalled primary market activity.

“Don’t expect any deals this week,” a source said.

While new deal activity is expected to remain muted until equity markets stabilize, there is a pipeline of deals in the works, a source said.

After several years of losing prospective issuers to the high-yield market, well-known names in junkbondland are starting to inquire about equity-linked financing.

“They’re appalled at how wide levels have gone,” a source said.

However, with the degree of uncertainty in markets, equities will need to stabilize before new deal activity resumes in full force.

Equities remained volatile early Tuesday with indexes wavering between gains and losses early in the session.

The Dow Jones industrial average was down 38 points, or 0.12%, the S&P 500 index was up 0.07%, the Nasdaq Composite index was up 0.27% and the Russell 2000 index was down 0.02% shortly before 11 a.m. ET.

There was $98 million in reported volume about one hour into the session.

Airbnb Inc.’s 0% convertible notes due 2026 were active on the tape with the notes retesting their outright lows as stock hit an all-time low.

The 0% convertible notes were down about 0.5 point outright to an 82-handle early in the session.

They were changing hands at 82.5 early in the session. The yield was about 5.375%.

The notes were the most actively traded issue early in the session with $6.5 million in reported volume.

Airbnb’s stock hit an all-time low of $97.20 before bouncing back into positive territory.

Stock was changing hands at $99.34, an increase of 0.32%, shortly before 11 a.m. ET.

Airbnb’s 0% convertible notes last traded down to an 82-handle in the sell-off that preceded the release of the Federal Reserve’s minute notes in late May.

The notes jumped alongside the broader market to trade as high as 88. However, selling in the name resumed following Friday’s release of the CPI report.

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