Convertibles market tone better; high-grade in demand; TotalEnergies soon-to-mature notes active

By Abigail W. Adams

Portland, Me., Sept. 28 – There was an uptick of activity in the convertible bond secondary space on Wednesday with the market tone improved as equities and Treasuries staged a dramatic recovery in response to the Bank of England’s announced intervention to restore order to the market.

Equity indexes surged after an early morning wobble as Treasury yields fell in response to England’s central bank’s promise to buy its long-dated bonds after the passage of tax cuts sent England’s currency and bonds reeling.

The Dow Jones industrial average closed Wednesday up 545 points or 1.88%, the S&P 500 index closed up 1.97%, the Nasdaq Composite index closed up 2.05% and the Russell 2000 index closed up 3.17%.

There was $92 million in reported volume about one hour into the session and $542 million about one hour before the market close with high-grade names continuing to dominate the tape.

Southwest Airlines Co.’s 1.25% convertibles due 2025 (Baa1/BBB) were once again the name of the day as the notes gained outright and improved dollar-neutral.

Illumina Inc.’s soon-to-mature 0% convertible notes due Aug. 18, 2023 (BBB) were also on the rise in heavy volume with the yield coming in.

Ford Motor Co.’s 0% convertible notes due 2026 (Ba2/BB+) were also among the volume movers of Wednesday’s session although with little movement in price.

TotalEnergies SE’s 0.5% convertible notes due Dec. 2, 2022 (A1/A+) returned to the spotlight on Wednesday with the notes trading on heavy volume as their maturity fast approaches.

Southwest improves

Southwest’s 1.25% convertible notes due 2025 once again dominated the tape with the notes improving on an outright and dollar-neutral basis as markets rebounded.

The 1.25% notes gained 1.625 points outright with stock up 3%.

They were changing hands at 117.25 in the late afternoon.

The notes expanded about 0.25 point dollar-neutral, a source said.

There was $28 million in reported volume.

Southwest stock traded to a low of $31.45 and a high of $32.55 before closing the day at $32.43, an increase of 2.95%.

Illumina’s yield

Illumina’s 0% convertible notes due Aug. 18, 2023 rose in heavy volume with the yield on the notes coming in as Treasury yields declined.

The 0% notes gained about 0.5 point outright to trade at 96.3 heading into the market close.

The yield on the notes, which was previously wrapped around 5%, dropped to 4.375%.

There was $20 million in reported volume.

The 0% notes have seen heavy volume over the past few sessions with short-duration notes with high yields in demand.

With the rebound in Treasuries, the yield on the one-year bill fell below 4% after largely trading above it since the Federal Open Market Committee announcement on Sept. 21.

Ford active

Ford’s 0% convertible notes due 2026 were active although with little movement in price.

The 0% convertible notes were wrapped around 95 heading into the market close.

There was $11 million in reported volume.

Ford stock traded to a low of $11.76 and a high of $12.24 before closing the day at $12.18, an increase of 2.27%.

TotalEnergies end-of-life

TotalEnergies 0.5% convertible notes due Dec. 2, 2022, an issue that has long been tucked away, returned to the spotlight on Wednesday for some end-of-life trades.

The 0.5% convertible notes were largely unchanged in heavy volume with the notes wrapped around 99.375, according to a market source.

They were carrying a yield of 4.177%.

There was $11 million in reported volume with four large trades on the tape.

The notes were trading outright for their yield, a source said.

TotalEnergies, formerly Total SA, was in the news on Wednesday after it announced a special dividend of 96 cents for 2022.

While the special dividend did little to change the valuation of the notes, it may have sparked interest in the name, a source said.

TotalEnergies priced a $1.2 billion issue of the cash-settled notes in a Regulation S offering in 2015.

Mentioned in this article:

Ford Motor Co. NYSE: F

Illumina Inc. Nasdaq: ILMN

Southwest Airlines Co. NYSE: LUV

TotalEnergies SE EPA: TTE

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