What to make of Friday’s action?

You might say things came full circle. The market liked it, then hated it when the Fed didn’t raise rates two weeks earlier. When we got surprisingly weak employment data, given the mindset of “rates are unhealthy-low,” it was no shock that stocks sold off hard and Treasurys rallied. But then, it seemed, there was a realization that things made sense. Maybe the Fed wasn’t so off base. Maybe we overreacted. Maybe we’re making too big a deal out of everything.

The one unfortunate development would seem to be a prolonged reluctance from convertible issuers in a low-rate regime. Maybe, maybe not. The mislabeled high- yield market has been struggling and didn’t rally much on Friday, though today seems to be better with a commodity bounce. Does high yield cease to be a viable alternative for a lot of our prospects? It’s a reasonable thesis.

In this issue we recap quarterly performance, or lack thereof, in the convertible market viewed through our HOCS prism. We also discuss some big changes in the Ugly 20 list. We hope these recaps will provide some new insights into the just- completed quarter.

October promises to be an interesting month—a market looking for direction, earnings, and an unusually intriguing baseball postseason. Let’s get strapped in.

One last thing—in last week’s Euro Gang of 20, we mentioned the downtrodden Volkswagen convertible. It got through our filters, and we were so intrigued by the situation that forgot to mention it was a mandatory convertible. Mandatories don’t belong in HARP and HOCS pieces, so we apologize. 

(This is the cover letter for the subscription-based weekly Hillside's Hybrid Vigor newsletter. For a complete copy, please contact John Anderson at + 1 (646) 712-9289 x 107).