Convertibles firm pre-Fed; Southwest Airlines, onsemi better; PPL, Alliant down outright

By Abigail W. Adams

Portland, Me., March 21 – The convertibles primary market remained dormant on Tuesday although deals are in the pipeline and expected to launch in the coming days, sources said.

Meanwhile, it was a strong day in the convertibles secondary space with buyers returning to the space as the Federal Open Market Committee convenes.

The tone continued to improve as equity indexes added to their gains with the banking sector stabilizing.

Headlines that JPMorgan was advising First Republic Bank on strategic alternatives and Treasury secretary Janet Yellen had pledged intervention to protect deposits at small and mid-sized banks helped boost market sentiment.

However, the FOMC’s rate hike announcement and chair Jerome Powell’s press conference comments on Wednesday will be the defining moment for markets that have undergone a dramatic repricing since Silicon Valley Bank’s collapse.

The market debate is between either no change in interest rates or a 25 basis point increase, a source said.

The Dow Jones industrial average closed Tuesday up 316 points, or 0.98%, the S&P 500 index closed up 1.3%, the Nasdaq Composite index closed up 1.58% and the Russell 2000 index closed up 2.05%.

On-the-run names in the convertibles secondary space were well bid on Tuesday with the market generically lifted 0.25 to 0.5 point dollar-neutral, a source said.

However, there was some selling in off-the-run issues while bids were on the table.

There was $61 million in reported volume about one hour into the session and $478 million in reported volume about one hour before the market close with investment grade issues continuing to dominate the tape.

Southwest Airlines Co.’s 1.25% convertibles due 2025 (Baa1/BBB) were among the most actively traded issue of Tuesday’s session with the notes expanding on a strong day for stock.

Alliant Energy Corp.’s 3.875% convertible notes due 2026 (BBB+) and PPL Capital Funding Inc.’s 2.875% convertible notes due 2028 (Baa1/BBB+) were lower outright alongside stock.

onsemi’s 0.5% convertible notes due 2029 returned to focus with the notes gaining on an outright and dollar-neutral basis in heavy volume.

Investment-grade trades

Investment-grade issues continued to dominate the tape on Tuesday with Southwest Airlines’ 1.25% convertibles due 2025 in focus on a strong day for stock.

The 1.25% notes gained about 1 point outright with stock up 3%.

The notes were changing hands at 108.375 in the late afternoon.

They gained about 0.5 point dollar-neutral, a source said.

There was $26 million in reported volume.

Southwest Airlines’ stock traded to a low of $30.37 and a high of $31.16 before closing at $31.04, an increase of 3.19%.

Alliant Energy’s 3.875% convertible notes due 2026 were lower alongside stock after trading up to a new outright high the previous session.

However, the notes were moving in line with equity, a source said.

The 3.875% notes were seen at 101.875 versus a stock price of $52.63 early in the session, according to a market source.

They were trading at 101.25 versus a stock price of $51.47 in the late afternoon.

While the notes were lower outright, there were buyers for the paper, a source said.

There was $14.5 million in reported volume.

Alliant Energy’s stock traded to a low of $51.25 and a high of $53.88 before closing at $52.01, down 3.26%.

The 3.875% notes closed the previous session at 102.5, the highest level for the notes since the $575 million issue priced at par on Feb. 27.

PPL’s 2.875% convertible notes due 2028 were also lower alongside stock.

The notes were changing hands at 98.25 versus a stock price of $27.13 early in the session.

They were seen at 97.75 versus a stock price of $26.72 in the late afternoon.

There was $18 million in reported volume.

PPL’s stock traded to a low of $26.42 and a high of $27.38 before closing at $26.79, down 1.8%.

onsemi gains

onsemi’s 0.5% convertible notes due 2029 were on the rise in heavy volume as buyers returned to the space.

The 0.5% notes gained 1 point outright with stock up about 2%.

The notes were changing hands at 102.75 versus a stock price of $81.16 in the late afternoon, according to a market source.

There was $24 million in reported volume.

onsemi’s stock traded to a high of $82.87 and a low of $79.81 before closing at $81.35, an increase of 1.71%.

Mentioned in this article:

Alliant Energy Corp. Nasdaq: LNT

onsemi Nasdaq: ON

PPL Capital Funding Inc. NYSE: PPL

Southwest Airlines Co. NYSE: LUV

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