Morning Commentary: Peloton convertibles active amid end-of-quarter trading activity

By Abigail W. Adams

Portland, Me., June 30 – The convertibles secondary space was quiet on Friday with activity expected to dwindle as market liquidity thins ahead of the July 4 holiday in the United States.

With the timing of the holiday on Tuesday, the stock market will see a rare half-day session on Monday, which is usually just enjoyed by fixed income asset classes, a source said.

Little is expected from either session with end-of-quarter clean-up expected to be the driver of trading activity on Friday.

The lack of liquidity in the space comes amid continued macro data, which is painting a confusing portrait of the economy.

The Personal Consumption Expenditures report released pre-open Friday reflected cooling inflation with the annual core PCE of 4.6% coming in slightly below the 4.7% forecast.

Consumer spending also showed signs of decreasing, a reflection of weakening in the economy.

The data comes after the latest GDP print which blew past analyst expectations by a large margin.

While the PCE report reflected some deceleration of inflation, debate remains about whether it is enough to deter the Federal Reserve from delivering more rate hikes in 2023.

However, equities responded favorably to the news with the Dow Jones industrial average up 213 points, or 0.62%, the S&P 500 index up 1.07%, the Nasdaq Composite index up 1.48% and the Russell 2000 index was up 0.58% shortly before 11 a.m. ET.

There was $54 million in reported convertibles trading volume about one hour into the session with few names seeing concentrated activity.

Peloton Interactive Inc.’s 0% convertible notes due 2026 was the most actively traded name early in the session with the notes weaker in the activity.

The 0% notes were down about 0.75 point to trade at 76 with a yield of 10.75%, according to a market source.

There was $5 million in reported volume.

While the long-busted convertible notes largely trade for their yield, Peloton’s stock was changing hands at $7.48, an increase of 0.29%, shortly before 11 a.m. ET.

The activity in the name was most likely connected to end-of-quarter activity, a source said.

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