Convertibles see volatility; Sea, Unity active; Lucid up, then down; Stride outperforms

By Abigail W. Adams

Portland, Me., Jan. 26 – Volatility continued to roil markets on Wednesday with buyers giving way to sellers in risk assets following Federal Reserve chair Jerome Powell’s press conference.

There was a good tone to the convertibles secondary space early in the session as equities opened the day strong.

“The panic seems to have subsided,” a source said early in the session. Buyers were starting to return to the market.

However, the strong start to the day did not hold with the market turning “ugly” during Powell’s press conference.

“It was the hawkish tone and the tightening in March,” a source said.

Powell confirmed what many had feared – the Federal Reserve was ready to begin raising rates at their March meeting.

While equity indexes started the day with 1% to 2% gains, they closed the day flat to negative.

The Dow Jones industrial average closed the day down 130 points, or 0.38%, the S&P 500 index closed down 0.15%, and the Russell 2000 index closed down 1.38%.

The Nasdaq Composite saw gains of more than 2.5% in intraday activity, cratered about 0.5% during Powell’s press conference but clawed back and closed the day up 0.02%.

There was over $100 million in reported convertible bond trading about one hour into the session and $700 million about one hour before the close.

Sea Ltd.’s 0.25% convertible notes due 2026 and Unity Software Inc.’s 0% convertible notes due 2026 were among the most actively traded issues during Wednesday’s session although with little price movement.

Lucid Group Inc.’s 1.25% convertible notes due 2026 remained volatile with the notes seeing a large dollar-neutral expansion early in the session but closing the day largely unchanged.

Stride Inc.’s (formerly K-12 Inc.) 1.125% convertible notes due 2027 were the major winners of Wednesday’s session with the notes up on an outright and dollar-neutral basis as stock surged following earnings.

Active issues

Sea’s 0.25% convertible notes due 2026 and Unity’s 0% convertible notes due 2026 were in focus on Wednesday.

Sea’s 0.25% convertible notes were up about 2 points outright prior to the late day sell-off.

They were changing hands at 83.75 versus a stock price of $142.64 about one hour before the market close.

However, the notes returned to an 82-handle as the company’s equity turned negative heading into the close.

There was about $25 million in reported volume.

Sea’s American Depositary Shares traded to a high of $151.66 and a low of $133.15 before closing the day at $135.61, a decrease of 6.51%.

Unity’s 0% convertible notes gained about 0.875 point outright with stock up more than 5% at the open.

They were changing hands at 84.125 versus a stock price of $107.25 early in the session, according to a market source.

The notes remained wrapped around 84 in the late afternoon.

There was $24 million in reported volume.

Unity Software’s stock traded to a high of $109.62 and a low of $98.20 before closing the day at $99.50, a decrease of 4.36%.

Holders may have been using the early market strength to offload their position, a source said.

Lucid volatile

Lucid’s 1.25% convertible notes due 2026 were volatile alongside the broader market on Wednesday with the notes up early in the session but unchanged by market close.

The 1.25% notes were changing hands at 92.375 versus a stock price of $35.86 early in the session.

However, the notes plunged alongside stock heading into the market close and stood poised to close the day at 89.25.

The notes logged gains of 0.75 point dollar-neutral early in the session. However, those gains were wiped out by the market close with the notes ending the day flat dollar-neutral, a source said.

Lucid’s stock traded to a high of $36.88 and a low of $32.99 before closing the day at $33.41, a decrease of 5.78%.

Stride outperforms

Stride’s struggling 1.125% convertible notes due 2027 outperformed the market on Wednesday with the notes logging large gains on an outright and dollar-neutral basis post-earnings.

The 1.125% notes rose 10 points outright with stock up 25%.

The convertibles were changing hands at 99.875 versus a stock price of $34.66 in the late afternoon.

The notes expanded about 1 point dollar-neutral on the move up, a source said.

Stride’s stock traded to a low of $32.77 and a high of $36.51 before closing the day at $33.76, an increase of 25.01%.

The education technology company’s stock popped after reporting a large earnings beat.

Stride reported earnings per share of $1 versus analyst expectations for earnings per share of 77 cents.

Revenue was $409.5 million versus analyst expectations for revenue of $397.5 million.

Mentioned in this article:

Lucid Group Inc. Nasdaq: LCID

Sea Ltd. NYSE: SE

Stride Inc. NYSE: LRN

Unity Software Inc. NYSE: U

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