Fannie Mae slides again; Nabors up as oil adds; Newmont Mining extends gains on higher gold prices

By Rebecca Melvin

New York, Aug. 20 - Fannie Mae convertibles slumped again Wednesday as questions over the future of Fannie Mae and Freddie Mac, which provide so much liquidity to the U.S. mortgage market, remained a dominant theme in the session, market sources said.

"Lotta FNM/FRE fear out there," a New York-based sellside trader said via e-mail.

The new Fannie Mae mandatory preferreds sank another 6 points to 10.75 bid, 11.75 offered versus a share price of $4.40, following a milder drop on Monday when a Barron's article fanned fears that a Treasury Department bailout was inevitable. There was a hiatus in the drop on Tuesday.

A second more lightly played theme Wednesday was the price of oil, which wavered early but then retained its footing and looked to be generally gathering strength after last month's tumble.

The EIA's inventory data Wednesday showed oil stockpiles rose 9.39 million barrels to 305.9 million barrels, the biggest gain since March 2001; but gasoline inventories dropped 6.2 million barrels, which was more than double the 3 million barrel decline expected by analysts.

Nabors Industries Ltd. convertibles added a point in early trade as their underlying shares climbed more than $1, or 3.5%, on the day.

Gold mining company Newmont Mining Corp. was mentioned in trade again this week as gold prices climbed for a third consecutive day.

The price of gold has been boosted by a tumble in equities as well as dollar weakness, plus factors like an expected period of seasonally strong demand from India and the Middle East.

Overall, the convertibles market was described as quiet, and the August lull set in fully, according to a West Coast-based trader.

PDL BioPharma Inc. was flat to slightly higher in thin trade after news that the biotech has joined forces with Bristol-Myers Squibb Co. to develop its multiple myeloma treatment.

Fannie Mae sinks amid speculation

Fannie Mae's 8.75% mandatory preferreds - which were issued May 8 - closed at 10.75 bid, 11.75 offered versus a share price of $4.40, compared to 17.25 versus a share price of $7.07 on Monday. Recently the paper was at 20 or 21.

The older Fannie Mae 5.375% series 2004-1 convertible perpetual preferreds were indicated to close at 29,243 versus a share price of $4.40 on Wednesday, compared to 37,500 versus a share price of $6.625 on Monday.

Shares of the Washington, D.C.-based GSO (NYSE: FNM) plunged $1.61, or 27%, to a $4.40 close, which was off its low of the day at $3.95.

Fannie Mae's convertible preferreds responded mildly as their underlying shares crumbled 22% Monday.

There was a crescendo of talk Wednesday, particularly regarding Freddie Mac, and an abundance of put buying, according to reports.

More than just the fact that the equity could be wiped out if there is a bailout, the market was concerned about the far-reaching effects such an event would have on U.S. mortgages and the weak U.S. housing market.

On Monday, the equity's fall was precipitated by an article that said it's likely that the Treasury Department will recapitalize the two mortgage giants.

"Fannie was the big trader of the day," a New York-based sellside trader said. "I wish I could tell you what was going to happen, but I just can't."

Nabors adds with higher oil

Nabors' 0.94% convertible due 2011 closed at an indicated level of 103.385 versus a share price of $335.09 on Wednesday. Earlier in the day, the paper had traded at 102.75 versus a share price of $34.50.

The previous market had been about 101 to 102.

Nabors common stock (NYSE: NBR) gained $1.17, or 3.5%.

That compares to July 2, prior to a drop in oil prices, at 124.5 versus a share price of $49.11.

Nabors is a Hamilton, Bermuda-based land drilling contractor.

On Wednesday, crude oil for September delivery rose 94 cents, or 0.8%, to $115.47 a barrel near the close of floor trading on the New York Mercantile Exchange.

Newmont adds with higher gold

Newmont Mining's 1.25% convertibles due 2014 traded at 115 versus a share price of $43.25 on Wednesday, compared to 113.5 versus a share price of $42.375 on Monday.

The Newmont Mining 1.625% convertibles due 2017 traded at 114 on Wednesday, compared to 112.25 on Monday.

Gold prices were up to about $818 an ounce during the session, which was 0.5% higher than Tuesday.

The Denver-based gold producer has operations in the United States, Australia, Peru, Indonesia, Ghana, Canada, Bolivia, New Zealand and Mexico. Its shares (NYSE: NEM) closed up 42 cents, or 1%, at $43.25.

PDL unchanged to slightly higher

One trader blamed the thin volume of PDL bonds trading on the August lull.

"We traded zero bonds," he said. "The stock is up 60 cents, and despite the good news, not much is trading."

What was traded looked to be on a convert arb basis to be unchanged to slightly up, he said.

PDL's 2.75% convertibles due 2023 traded during the session at 99.5 versus a share price of $12.50, but another source put the market at 98.5 bid, 99 offered. They were last at 97.69.

The 2% convertibles due 2012 traded at 91 versus a share price of $12.50 and were indicated to close at that level, compared to 88.65 where they were last.

Shares of the Redwood City, Calif.-based biotechnology company (Nasdaq: PDLI) closed up 64 cents, or 5.4%, at $12.44.

The news was that Bristol-Myers will buy the rights to PDL's treatment for multiple myeloma, or blood cancer, for about $30 million up front. PDL could earn up to an additional $680 million in payments if the certain development and sales milestones are met.

The PDL antibody, Elotuzumab, provides a novel approach to treating multiple myeloma because it is an antibody that binds to the CS1 glycoprotein, allowing the immune system to selectively kill myeloma cells with minimal effects on other cell types, according to the companies' release.

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