Morning Commentary: Convertibles secondary surges post-CPI; Rivian leads leader board

By Abigail W. Adams

Portland, Me., Nov. 14 – The convertibles secondary space was off to a strong start on Tuesday as markets surged following the latest Consumer Price Index report.

The bond market was “screaming” early in the session with Treasury yields plunging double digits as markets priced in an end to rate hikes.

Equities surged in tandem with the small cap index outperforming.

The Dow Jones industrial average was up 517 points, or 1.52%, the S&P 500 index was up 2.00%, the Nasdaq Composite index was up 2.31% and the Russell 2000 index was up 4.47% shortly before 11 a.m. ET.

There was $78 million in reported volume about one hour into the session with Rivian Automotive Inc.’s convertible notes continuing to gain in active trade.

While the broader market was strong, the convertibles secondary space was not without disaster early Tuesday with Beauty Health Co.’s 1.25% convertible notes due 2026 cratering outright with stock more than cut in half on the heels of an earnings miss.

Rivian gains

Rivian’s convertible notes continued to gain in active trade as stock rebounded from the heavy selling of the previous week.

Rivian’s 4.625% convertible notes due 2029 added more than 3 points outright with stock up about 4%.

They were trading at 110.75 early in the session.

The notes expanded about 0.5 point dollar-neutral on the move up, a source said.

The 3.625% convertible notes due 2030 also added about 3 points outright.

They traded up to 96.5 early in the session.

The notes added about 1 point dollar-neutral on the move up, a source said.

Rivian’s stock was trading at $16.81, an increase of 3.85%, shortly before 11 a.m. ET.

Stock added to the strong gains of the previous session with strong market conditions and news of Rivian’s latest capital raise buoying the stock.

Rivian announced on Monday plans to issue $15 billion in taxable bonds to fund the construction of a Georgia production plan.

Beauty Health plummets

While the market was strong, earnings-related news continued to spark fire-sales in certain issues.

Beauty Health’s 1.25% convertible notes due 2026 cratered early Tuesday with stock more than cut in half after a large earnings miss.

The 1.25% convertible notes fell 15 points outright with stock down about 60%.

The notes were trading at 58.25 early in the session.

The notes carry a conversion premium of over 1,000% and have no theoretical delta although some market players may have the notes on hedge, a source said.

Beauty Health’s stock sank to a 52-week low of $1.41 early in the session and was trading at $1.64, a decline of 58.14%, shortly before 11 a.m. ET.

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