Morning Commentary: Western Digital convertibles add to gains; Confluent notes drop

By Abigail W. Adams

Portland, Me., Nov. 2 – The convertibles secondary space remained active on Thursday with equity markets strong on the heels of the Federal Open Market Committee’s announcement with markets again expecting an end to rate hikes.

The Dow Jones industrial average was up 369 points, or 1.11%, the S&P 500 index was up 1.46%, the Nasdaq Composite index was up 1.39% and the Russell 2000 index was up 1.4% shortly before 11 a.m. ET.

There was $98 million in reported volume about one hour into the session with the first new paper in more than one week continuing to put in a strong performance amid a strong backdrop.

Western Digital Corp.’s 3% convertible senior notes due 2028 continued to climb higher their second day in the secondary space after a strong aftermarket debut.

While the market tone improved considerably on Thursday, earnings-related news continued to tank certain outstanding issues.

Confluent Inc.’s high-premium 0% convertible notes due 2027 fell as the cloud software company’s stock sank post-earnings.

Western Digital day 2

Western Digital’s 3% convertible notes due 2028 continued their upward momentum their second day in the secondary space after a strong aftermarket debut.

The 3% notes climbed 1 point outright with stock up 1.5%.

The convertibles were changing hands at 104.75 versus a stock price of $42.48 early in the session, according to a market source.

The notes continued to dominate activity in the secondary space with $22 million in reported volume.

Western Digital’s stock was seen at $42.58, an increase of 2.01% shortly before 11 a.m. ET.

Western Digital’s new notes jumped more than 3 points outright and expanded 1.25 points dollar-neutral on their aftermarket debut on Wednesday.

Confluent’s earnings

Confluent’s high-premium 0% convertible notes due 2027 were under pressure as stock got nearly chopped in half on the heels of earnings.

The 0% notes fell 3 points outright.

They were changing hands at 78.375 with a yield of 7.78% about one hour into the session.

There was $7.5 million in reported volume.

Confluent’s stock plunged to $15.54, a decrease of 44.77%, shortly before 11 a.m. ET.

While the cloud software company bested expectations with earnings, the notes sank on weak guidance.

Confluent reported earnings per share of 2 cents versus analyst expectations for losses per share of 1 cent and revenue of $200.18 million versus expectations for revenue of $195.17 million.

However, Confluent also announced it was expecting revenue of $204 million to $205 million for the fourth-quarter, well short of expectations for revenue of $212.3 million.

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