Morning Commentary: Super Micro Computer convertible notes in focus, fall post-earnings

By Abigail W. Adams

Portland, Me., May 1 – The convertibles secondary space remained quiet early Wednesday with equity indexes either side of unchanged as markets brace for the Federal Open Market Committee’s afternoon announcement and chair Jerome Powell’s press conference.

The Dow Jones industrial average was up 68 points, or 0.18%, the S&P 500 index was down 0.18%, the Nasdaq Composite index was down 0.01% and the Russell 2000 index was down 0.09% shortly before 11 a.m. ET.

While the secondary space remained quiet, earnings-related volatility continued to spark large price movements in the space.

There was $80 million in reported convertible bond trading volume about one hour into the session with Super Micro Computer Inc.’s 0% convertible notes due 2029 accounting for nearly one-quarter of the total activity in the space.

The 0% convertible notes sank 8 points outright to reapproach their all-time lows as stock dropped 15% post-earnings.

The 0% notes were trading at 94.875 versus a stock price of $736.60 early in the session, according to a market source.

There was $21 million on the tape.

Super Micro’s stock was trading at $720.59, a decrease of 16.09%, shortly before 11 a.m. ET.

Stock sank on mixed earnings with the company beating on the bottom line but falling short on the top.

Super Micro reported $6.65 per share versus the $5.57 per share expected.

Revenue was $3.85 billion versus the $3.9 billion expected.

Super Micro’s stock and convertible notes also plunged in mid-April when the information technology company did not pre-report numbers as it announced its earnings report release date.

The convertible notes also traded down to a 94-handle mid-April although they recovered outright and were wrapped around 103 heading into earnings.

While the notes have been volatile outright, they have largely moved in line on a dollar-neutral, or hedged, basis.

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