Convertibles trading light; buyers hard to find; Palo Alto active; Microchip rebounds

By Abigail W. Adams

Portland, Me., March 17 – Trading volume remained light in the convertibles secondary space as equities pared their losses from Monday’s sell-off due to an increased policy response to the economic impact of the coronavirus.

After cratering on Monday, indexes pared their losses with the Dow Jones industrial average closing the day up 5.2%, the S&P 500 index closing the day up 6% and the Nasdaq Composite closing the day up 6.23%.

While equities improved, the volatility of the past few weeks have taken their toll on the convertibles market with returns for both outright and hedge accounts in negative territory.

The secondary space remained illiquid on Tuesday with buyers hard to find, a market source said.

Large issues remained the focus of the muted trading activity.

Palo Alto Networks Inc.’s 0.75% convertible notes due 2023 were active with the notes trading down to a 91-handle.

Microchip Technology Inc.’s 1.625% convertible notes due 2027 continued to see active trading with the notes volatile as stock wavered between gains and losses.

BofA Finance LLC’s 0.125% cash-settled equity-linked notes due 2022 tied to Charter Communications Inc. saw some large volume trades with the notes well below their reoffer price.

Returns

While equities pared their losses from Monday’s sell-off, the volatility of the past few weeks have taken their toll on the convertibles market with returns in negative territory.

One-month returns for the Bloomberg Barclays U.S. Convertible Securities ETF were bordering on negative 24% as of March 16.

Year-to-date returns were negative 17.86%.

Month-to-date returns for the HFRX Convertible Arbitrage index, which tracks hedge funds, was negative 4.53% as of March 13.

Year-to-date returns, which were up 0.51% at the end of February, were negative 4.05% at last Friday’s close.

Palo Alto active

Palo Alto’s 0.75% convertible notes due 2023 were again active on Tuesday.

The 0.75% notes continued to change hands on a 91-handle on Tuesday – a level they hit in active trading on Monday – despite a rebound in stock.

There was about $12 million in reported volume heading into the late afternoon.

Palo Alto stock traded to a low of $134.66 and a high of $144.70 before closing the day at $141.56, an increase of 3.14%.

Palo Alto stock was $208.90 when the company priced a $1.69 billion issue of the convertible notes in July 2018.

Microchip rebounds

Microchip’s 1.625% convertible notes due 2027 continued to see high-volume activity on Tuesday with the notes rebounding alongside stock.

The notes traded to a low of 91 early in the session but traded up to 99 in the late afternoon, according to a market source.

The bonds saw more than $20 million in reported volume by the late afternoon.

While less active, Microchip’s 1.625% convertible notes due 2025 also rebounded alongside stock.

The notes traded up about 5 points outright to 130 in the late afternoon.

Microchip stock traded to a low of $54.86 and a high of $62.97 before closing the day at $62.50, an increase of 12.07%.

Microchip’s 1.625% convertible notes due 2027 have over $2 billion outstanding and 1.625% convertible notes due 2025 have more than $1.72 billion outstanding.

BofA trades down

BofA Finance’s 0.125% cash-settled equity-linked notes due 2022 tied to Charter Communications continued to change hands well below their reoffer price on Tuesday.

While there were few trades on the tape, the notes saw high volume with more than $5 million changing hands in a single trade.

The notes traded down to 95.25 Tuesday afternoon.

Charter Communications’ stock traded to a low of $388.23 and a high of $406.23 before closing the day at $393.02, an increase of 1%.

BofA priced a $300 million issue of the 0.125% notes at 103.25 in late January.

Mentioned in this article:

Charter Communications Inc. Nasdaq: CHTR

Microchip Technology Inc. Nasdaq: MCHP

Palo Alto Networks Inc. NYSE: PANW

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