Morning Commentary: Convertibles trading slows; Royal Caribbean notes up on earnings

By Abigail W. Adams

Portland, Me., May 4 – The whirlwind of activity sparked by $3.1 billion of new supply in the convertibles secondary space slowed on Thursday with markets heavy as regional banks collapsed.

Federal Reserve chair Jerome Powell’s assurance of the stability of the banking sector did little to alleviate investor concerns with the market signaling once again that the Fed is getting it wrong.

“It’s the fact that he didn’t say anything about the banks and they’re getting shredded,” a source said.

Equity indexes opened Thursday in the red with regional banks leading losses.

The Dow Jones industrial average was down 328 points, or 0.98%, the S&P 500 index was down 0.78%, the Nasdaq Composite index was down 0.55% and the Russell 2000 index was down 1.85% shortly before 11 a.m. ET.

The stocks of five to six regional lenders had been halted for volatility less than one hour after the opening bell.

While the broader market was weak and activity thin, it was far from doom and gloom in the secondary space with new paper continuing to perform well and earnings-related news boosting outstanding issues.

There was $99 million in reported volume with CMS Energy Corp.’s new 3.375% convertible notes due 2028 (Baa2) the top traded issue in the space.

The notes remained strong despite the heavy market conditions.

They were changing hands at 101.75 versus a stock price of $60.70 in the early afternoon, a source said.

There was $12.5 million in reported volume.

CMS’ stock was trading at $61.05, a decrease of 0.19%, shortly before 11 a.m. ET.

Royal Caribbean Group’s deep-in-the-money 6% convertible notes due 2025 were on the rise alongside stock following earnings.

The 6% notes gained 8 points outright with stock up 9% at the open.

The notes were seen at 165.25 versus a stock price of $72.33 early in the session, according to a market source.

There was $6 million in reported volume.

Royal Caribbean’s stock was trading at $71.75, an increase of 6.75%, shortly before 11 a.m. ET.

Royal Caribbean bested analyst expectations for first-quarter earnings with losses per share of 23 cents, versus the losses of 69 cents expected, and revenue of $2.89 billion, versus the $2.82 billion expected.

The cruise line operator also upped its guidance.

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