Stocks surge in unexpected rally; convertible bonds participate where they can

Chicago, Oct. 3 – In a day clouded with uncertainty when market players came to work in the morning (rumors were swirling that a big bank could fall in a Lehman-like swoon), by midday the tide had turned and the equity markets were nearly cheerful and definitively up in a huge rally by the close.

Perhaps it will be the sort of rally to create a window of opportunity for new issuers, although the primary market was still radio silent Monday evening.

The S&P 500 index, the Russell 2000 index and the Nasdaq Composite index were each more than 2.5% better by the close than where they started Monday morning.

It was a tremendous surge, perhaps fueled by hope and speculation that the rapid rise in interest rates by the central banks threating to topple some of the largest names in the sphere could slow further increases from central bankers. Perhaps.

New U.K. prime minister Liz Truss retracted her odd-timed announcement to cut income taxes on high earners, which also stabilized the world economic stage, most especially helping the pound start to stage a modest recovery after a substantial dip last week.

Carnival

Carnival Corp.’s 5.75% convertible bonds due 2024 were back on the tape.

The company did not participate in the surprise upswing; its stock was down 2.49% on Monday on the heels of a recent earnings miss announcement.

In fact, the stock hit a new low: $6.85 per share, a level not seen since 1992.

The bonds were not terribly active on Friday, but a late-in-the-day trade brought them down at least 15 points.

More active on Monday, the bonds were trading on a 99-handle throughout the day.

The bonds were moving at 127 when they first started trading, coming out of a privately negotiated exchange mid-August.

Twitter

Twitter Inc. also failed to enjoy the sun on Monday.

Instead, the company’s stock ended the day down 3.14%, landing at $42.54 per share.

Some traders weren’t too busy scrolling through a release of text messages regarding the doomed courthouse deal to either buy or sell the company’s bonds, and they moved lower as well.

Twitter’s zero-coupon bonds due in 2026 were flat to a little lower in activity, straddling 92 generally throughout the session.

The company’s 0.25% bonds due 2024 were more active, but almost flat with Friday trading levels. They ended the day just peaking above 100.67.

Etsy

Beating the overall equity market on Monday, Etsy, Inc. shares moved up 4.85% on the day to close at $104.99.

Etsy’s 0.25% convertible bonds due 2028 were following the market higher, as well.

The bonds moved up to 79.55, a partial recovery after falling off a cliff in the mid-to-high 80s in mid-September.

The homemade goods e-commerce company’s 0.125% convertibles due 2026 were less active, but also better on the day, jumping several points to nearly reach 135, a level it fell from at the beginning of last week.

Year-to-date the company’s stock is off 50% from where it started on Jan. 1.

Lumentum

Lumentum Holdings Inc. has been following the S&P 500’s ups and down rather closely since February.

Like the S&P 500 on Monday, the company’s stock was up, even beating the S&P’s upbeat spirit by about 1%.

The Calif.-based photonic products company’s stock was up 3.46% by day’s end at $70.94, with the bonds floating higher, too.

The company’s 0.5% convertibles due 2026 were better by about 1.5 points, ending the day above 95.5.

The bonds are bouncing off an all-time low from last week when they traded down to 93.8.

When the bonds priced in December 2018, they priced against a stock price of $69.68 and a 42.5% conversion premium.

Mentioned in this article:

Carnival Corp. NYSE: CCL

Twitter Inc. NYSE: TWTR

Etsy, Inc. Nasdaq: ETSY

Lumentum Holdings Inc. Nasdaq: LITE

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