Convertibles fall; Europe fears build with Ireland's downgrade; volumes low amid volatility

By Kenneth Lim

Boston, July 12 - Convertible bellwethers mostly fell across the board on Tuesday in line with equities as investors continued to shed risk assets on a credit ratings cut for Ireland.

Alcoa Inc. was down on the day with its stock despite a positive earnings report as the name succumbed to broad selling in equities.

Amgen Inc., Intel Corp. and Human Genome Sciences, Inc. were all down on the day as well on the widespread sell-off.

Trading volumes were light as the sharp decline in equities raised volatility and kept money on the sidelines.

"Too scared to move," one sellsider mentioned in a note.

Alcoa down after earnings

Alcoa's 5.25% convertibles due 2014 traded at about 252.5 versus a common stock price of $15.75 early in the day, according to a trader.

Alcoa said late Monday that its second-quarter profit more than doubled to 28 cents per share from 13 cents per share in the year-ago period. Excluding items, earnings per share were 32 cents, just shy of Street estimates of 33 cents.

The company's common stock closed at $15.71 on Tuesday, down by 1.26%, or $0.20.

The Pittsburgh-based aluminum producer said it expects production to rise by 30,000 metric tons in the third quarter but also forecast a $33 million increase in energy costs.

The company's stock and convertibles may have struggled to reach positive ground on Tuesday because of the selling in equities throughout the markets.

"Stocks getting hit," the sellsider said.

Equities struggle

Equity markets struggled on Tuesday on the back of another negative headline coming out of Europe.

Moody's Investors Service said it downgraded Ireland's debt rating to Ba1, putting the European country in junk territory.

The agency cited the probability that Ireland will require aid before it can again raise funds in the capital markets for the decision. Moody's maintained a negative outlook on the country's sovereign rating.

The major stock indexes were all down on the day as investors fled for safe havens like gold and Treasuries. The Dow Jones Industrial Average shed 58.88 points, or 0.47%, to close at 12,446.88. The S&P 500 index lost 0.44% or 5.85 points, to end the day at 1,313.64.

One trader said that investors have been quick to move on every piece of news and that the reaction to negative headlines has been decisive.

"Everything you think is cooked into the market is being traded upon once you see the headline," the trader said. "The fact remains that when you see headlines cross the tape, there's an instant bid for Treasuries."

Convertibles get dragged down

Convertibles could not withstand the onslaught, and the main convertible names were all down outright with their stocks.

Amgen's 0.375% convertible due 2013 eased by a quarter point outright to 100.125 versus an underlying stock price of $22.65.

Amgen common stock closed flat at $56.90 on the day.

The company is a Thousand Oaks, Calif.-based drug maker.

Human Genome Sciences' 2.25% convertible due 2012 was down by 2 points outright, seen at 141 against an underlying share price of $23.80.

The Rockville, Md.-based biopharmaceutical company's common stock slipped by 0.88%, or $0.21, to close at $23.64 on Tuesday.

Intel's 2.95% convertible due 2035 fell by a point to change hands at 104.5 versus an underlying share price of $22.60. Its 3.25% convertible due 2039 was 122.9 against the same stock price.

Intel is a Santa Clara, Calif.-based semiconductor chip maker. Its common stock closed at $22.45 on Tuesday, down by 1.75%, or $0.40.

Mentioned in this article

Amgen, Inc. Nasdaq: AMGN

Alcoa Inc. NYSE: AA

Human Genome Sciences, Inc. Nasdaq: HGSI

Intel Corp. Nasdaq: INTC

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