Southwest Airlines convertibles eyed; BILL falls post-earnings; high-grade names better

By Abigail W. Adams

Portland, Me., Nov. 3 – The convertibles secondary space saw a strong end to a volatile week as markets continued to cheer on an end to the Fed rate hike campaign following the latest U.S. nonfarm payrolls report.

Equity indexes continued to gain with small cap stocks outperforming as Treasury yields crumbled with the labor market finally showing signs of cooling.

The Dow Jones industrial average closed Friday up 222 points, or 0.66%, the S&P 500 index closed up 0.94%, the Nasdaq Composite index closed up 1.38% and the Russell 2000 index closed up 2.71%.

The 10-year Treasury yield continued to plunge and was down another 14 basis points to close Friday at 4.521% after hovering at 4.9% on Wednesday in the run up to the Fed’s announcement.

The secondary space was active amid the rally as buyers returned to the market.

There was $103 million in reported volume about one hour into the session and $539 million in reported volume about one hour before the market close.

High-grade names improved amid the move in rates with Southern Co.’s 3.875% convertible notes due 2025 (Baa2/BBB), Duke Energy Corp.’s 4.125% convertible notes due 2026 (Baa2/BBB) and CenterPoint Energy Inc.’s 4.25% convertible notes due 2026 (Baa2) continuing their upward moment.

While the broader secondary space recovered from heavy selling over the past week and a half, regional airlines continued to struggle.

Southwest Airlines Co.’s 1.25% convertibles due 2025 (Baa1/BBB) were the top traded name during Friday’s session with the notes unchanged in the heavy volume despite a strong day for stock.

BILL Holdings Inc.’s convertible notes sank outright in heavy volume as stock cratered after an earnings disappointment.

Southwest struggles

Southwest’s 1.25% convertible notes due 2025 continued to struggle as the broader market rebounded with regional airlines still in the crosshairs of investors.

The 1.25% convertible notes were unchanged outright as stock gained alongside the broader market.

The notes were changing hands at 96.625 in the late afternoon, according to a market source.

The notes were the most active in the secondary market on Friday with $27 million in reported volume.

Southwest’s stock traded to a low of $23.39 and a high of $23.94 before closing at $23.70, an increase of 2.29%.

While there was a lift-a-thon in broader markets, airlines continued to struggle after earnings in the sector raised concerns about travel demand and high energy prices threatened the bottom line.

High grade higher

High-grade names continued to see heavy volume on Friday with several names improved as Treasury yields tumbled.

Southern Co.’s 3.875% convertible notes due 2025 (Baa2/BBB) continued their upward momentum with the notes rising another 0.5 point outright.

The notes were trading just north of 99.75 versus a stock price of $70.88 early in the session, according to a market source. They remained wrapped around 99.75 heading into the market close.

The yield dropped to about 4%.

There was $17 million in reported volume.

Southern Co.’s stock traded to a high of $71.33 and a low of $70.37 before closing at $70.39, up 0.37%.

Southern Co.’s notes were trading on a 98-handle on Wednesday heading into Federal Reserve chair Jerome Powell’s press conference.

CenterPoint Energy’s 4.25% convertible notes due 2026 gained 0.5 point outright.

They were trading at 99 in the late afternoon with the yield about 4.5%, a source said.

There was $17 million in reported volume.

CenterPoint Energy’s stock traded to a low of $27.61 and a high of $28.01 before closing at $27.39, off 0.38%.

The 4.25% convertible notes were trading on a 97-handle pre-Fed with the yield about 5.125%.

Duke Energy’s 4.125% convertible notes due 2026 (Baa2/BBB) added 0.25 point outright.

The notes were trading at 98.125 versus a stock price of $90.63 in early trade with activity in the name petering out as the session progressed, sources said.

The yield was 4.95%.

There was $7.5 million in reported volume.

The notes were trading on a 97-handle with a yield of about 5.375% prior to Wednesday.

Duke Energy’s stock was trading at $91.51, an increase of 1.8%, shortly before 11 a.m. ET.

BILL Holdings’ earnings

BILL Holdings’ convertible notes sank outright as stock took a dive after an earnings disappointment.

BILL’s high-premium 0% convertible notes due 2025 fell 6 points outright with stock off more than 25%.

They were changing hands at 89.25 versus a stock price of $66.82 in the late afternoon, according to a market source.

There was $22 million in reported volume.

BILL’s busted 0% convertible notes due 2027 were down 1.5 points outright.

They were trading at 78.5 in the late afternoon with the yield rising to 7.25%.

There was $7 million in reported volume.

BILL’s stock traded to a low of $58.15 and a high of $67.49 before closing at $66.93, a decrease of 25.18%.

BILL’s stock was under pressure after mixed earnings and weak guidance.

The fintech company beat on the bottom line with earnings per share of 54 cents versus analyst expectations for earnings per share of 50 cents.

However, the company missed on the top line with revenue of $265.14 million versus analyst expectations for revenue of $298.82 million.

The company also reported weak guidance and an expected slowdown in growth, which sparked the sell-off in stock.

Mentioned in this article:

BILL Holdings Inc. NYSE: BILL

CenterPoint Energy Inc. NYSE: CNP

Duke Energy Corp. NYSE: DUK

Southern Co. NYSE: SO

Southwest Airlines Co. NYSE: LUV

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