Morning Commentary: Peloton convertible notes in focus early, gain on partnership

By Abigail W. Adams

Portland, Me., Sept. 28 – While the convertibles primary market stood poised for a deal-less week, the secondary space remained active early Thursday with end-of-quarter cleanup and topical news driving volume.

Equity indexes again wavered between gains and losses as the market digested the latest slew of macro data.

Treasuries were largely flat after yields hit 52-week highs the previous session with the latest gross domestic product report showing a large reduction in consumer spending.

The Dow Jones industrial average was up 69 points, or 0.21%, the S&P 500 index was up 0.32%, the Nasdaq Composite index was up 0.22% and the Russell 2000 index was up 0.35% shortly before 11 a.m. ET.

With murmurs in the market about the large options expirations with negative gamma on Friday and the monthly personal consumption expenditure report, the Fed’s preferred inflation gauge, due out pre-open, sources expect a volatile session on Friday.

There was $82 million in reported convertible bond trading volume about one hour into Thursday’s session although few names saw concentrated trading activity.

Peloton Interactive Inc.’s 0% convertible notes due 2026 soared following news of a new partnership with Lululemon.

The 0% notes gained more than 4 points outright.

The notes were trading at 76.25 with a yield of 11.75% early in the session, according to a market source.

There was $11 million in reported volume.

The notes launched the week on a 72-handle.

The heavily busted convertible notes have long traded for their yield.

However, Peloton’s stock was trading at $4.74, an increase of 1.99%, shortly before 11 a.m. ET.

Peloton and Lululemon announced post-close Wednesday a strategic partnership with Peloton to provide content for Lululemon’s exercise app and Lululemon to be Peloton’s primary apparel partner.

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