Convertibles secondary soft; Rivian notes hold onto gains; American Water comes in

By Abigail W. Adams

Portland, Me., July 6 – It was a soft day in the convertibles secondary space on Thursday with equities and Treasuries under pressure on the heels of blockbuster employment reports that took markets by surprise.

Treasury yields shot to a multi-year high after the latest round of macro data.

While the JOLTS report showed a wider-than-expected decrease in job openings, the ADP employment report recorded a private payroll increase of 497,000, more than double analyst forecasts.

Market players will be closely eyeing the U.S. nonfarm payrolls report on Friday.

The surprising strength of the labor market has solidified expectations for additional rate hikes in 2023.

While closing off their lows, equity indexes still ended Thursday firmly in the red with the Dow Jones industrial average down 366 points, or 1.07%, the S&P 500 index down 0.79%, the Nasdaq Composite index down 0.82% and the Russell 2000 index down 1.64%.

Treasuries also closed the day off their lows although yields remained at a multi-year high with the two-year Treasury yield up 4.7 basis points to 5.002% and the 10-year Treasury yield up 10.1 bps to 4.038%.

While the convertibles secondary space was weak on Thursday, trading remained muted with $365 million in reported volume about one hour before the market close.

American Water Capital Corp.’s 3.625% exchangeable notes due 2026 (Baa1/A-), the last deal to clear the primary market, were lower under the heavy market conditions with investment-grade issues across the board coming in.

Rivian Automotive Inc.’s 4.625% convertible notes due 2029 remained a popular name with the convertible notes holding their dollar-neutral expansion over the past week and continuing to set new heights as stock continued its climb.

Lumentum Holdings Inc.’s 1.5% convertible notes due 2029 were lower alongside stock in active trade with the notes returning to par.

American Water weaker

American Water’s 3.625% exchangeable notes were weaker in active trade as investment-grade convertible notes across the board took a hit amid the most recent rate move.

The 3.625% notes fell back to a par handle with the notes changing hands at 100.75 in early trade, according to a market source.

They were trading at 100.5 versus a stock price of $142.65 later in the session.

The notes came in on the move down, a source said.

American Water’s exchangeables remained among the top traded issues in the secondary space with $15.5 million in reported volume.

American Water’s stock traded to a high of $144.18 and a low of $142.09 before closing at $142.42, a decrease of 1.64%.

Rivian holds gains

Rivian’s 4.625% convertible notes due 2029 continued to set new outright heights on Thursday as stock continued its bull run despite the weakness in the market.

The 4.625% notes added 4 points outright with stock up more than 5%.

The notes were changing hands at 130.25 versus a stock price of $20.95 in the late afternoon.

The notes were moving in line to slightly weaker dollar-neutral, a source said.

Rivian’s stock traded to a low of $19.64 and a high of $21.77 before closing at $21.62, up 5.82%.

Rivian’s convertible notes have jumped more than 35 points and expanded 3.5 to 4 points dollar-neutral over the past two weeks with the EV company’s second-quarter vehicle deliveries blowing past expectations.

Lumentum lower

Lumentum’s 1.5% convertible notes due 2029 were lower alongside stock with the convertible notes returning to par.

The 1.5% notes fell 1.375 points outright with stock off almost 2%.

They were seen just shy of par versus a stock price of $53.26 in the late afternoon, according to a market source.

There was $11 million in reported volume.

Lumentum’s stock traded to a low of $52.99 and a high of $54.25 before closing at $53.60, off 1.87%.

Thursday’s session marked the first time the 1.5% notes broke below a par handle since hitting the secondary space on June 14.

Mentioned in this article:

American Water Capital Corp. NYSE: AWK

Lumentum Holdings Inc. Nasdaq: LITE

Rivian Automotive Inc. Nasdaq: RIVN

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