Morning Commentary: Splunk’s soon-to-mature convertible notes in focus; primary quiet

By Abigail W. Adams

Portland, Me., Feb. 16 – The convertibles primary market remained dormant early Thursday with the week poised to close with no new issuance absent an overnight surprise post-close.

The lack of a pipeline has many in the market scratching their heads with investor demand strong and rates comparatively cheap.

While earnings season blackouts were pointed to as the drag on issuance in January, sources had expected to see an uptick at this stage in earnings season.

However, the indecision regarding rates and recession may be keeping potential issuers at bay, a source said.

Meanwhile, activity in the secondary space remained steady with accounts continuing to put cash to work despite the overhang in broader markets.

Equity indexes again launched the day deep in the red with the latest macro data pointing to sticky inflation.

While equity indexes remained in the red, they were well off the lows of the day with the Dow Jones industrial average down 247 points, or 0.72%, the S&P 500 index down 0.64%, the Nasdaq Composite index down 0.56% and the Russell 2000 index down 0.48% shortly before 11 a.m. ET.

There was $76 million in reported convertibles trading volume about one hour into the session.

Splunk Inc.’s convertible notes were active with the soon-to-mature 0.5% convertible notes due Sept. 15, 2023 the most heavily traded issue early in the session.

The 0.5% notes were little changed with the notes wrapped around 99 versus a stock price of $107.63, a source said.

While their duration is short, the notes still have some optionality with a conversion premium of about 37%.

Splunk’s 1.125% convertible notes due 2027 were also active.

The notes were trading at 86.75 versus a stock price of $107.21.

There was $4 million in reported volume.

Splunk’s stock was seen at $109.11, a decrease of 0.47% shortly before 11 a.m. ET.

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