Morning Commentary: Sarepta convertible notes active ahead of Fed decision on rates

By Abigail W. Adams

Portland, Me., Sept. 21 – It was a calm start to the day in the convertibles secondary space as markets await the Federal Open Market Committee’s afternoon announcement on interest rates.

Equity indexes launched the day in the green and Treasuries stabilized after yields hit their highest level in decades the previous session.

There was decent volume but few notable price movements in the space with the convertibles market flat ahead of what is expected to be a volatile afternoon.

While markets have largely priced in a 75 basis point rate increase, there is a minority view the Federal Reserve will act more aggressively, a source said.

The Federal Reserve’s economic projections will also be closely monitored for clues about how much economic pain the central bank is willing to induce before the dovish pivot the market is hoping for will take place.

The Dow Jones industrial average was up 144 points, or 0.47%, the S&P 500 index was up 0.52%, the Nasdaq Composite index was up 0.31% and the Russell 2000 index was up 0.71% shortly before 11 a.m. ET.

There was $62 million in reported volume about one hour into the session.

Sarepta Therapeutics Inc.’s 1.25% convertible notes due 2027 dominated the tape with the notes largely unchanged in heavy volume.

The notes were trading at 105.5 versus a stock price of $113.16 early in the session, according to a market source.

There was $9 million in reported volume.

Sarepta’s stock was changing hands at $113.04, a decrease of 0.71%, shortly before 11 a.m. ET.

There may have been some profit-taking in the name ahead of the Fed decision, a source said.

With the coupon low, the convertible notes will not hold if stock goes south.

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