Convertibles strengthen: shorter-dated paper adds 0.375 to 0.5 point; B of A surges; AMD gains

By Rebecca Melvin

New York, Feb. 6 - The convertible market strengthened Friday in tandem with a rally in stock markets, with financial preferreds extending gains after a turnaround Thursday.

Other paper also was lifted, particularly shorter-dated paper. But there were no notable names that stood out, sources said.

"Across the board, shorter-dated paper was better. Things were moving up by about 0.375 point to 0.5 point overall," a New York-based sellside trader said.

Bank of America Corp. rallied to the close Friday after suffering steep losses in heavy volume most of the week.

Citigroup Inc. also extended gains notched Thursday, as did Fifth Third Bancorp, which ended the week at about 360 from 270 on Thursday.

"They are screaming," a sellsider said of the financial preferreds.

The 4% convertibles of PNC Financial Services Group Inc., formerly of National City Corp., rose about 0.5 point to trade at 93 on Friday.

Advanced Micro Devices Inc. continued to inch up in very active trade Friday. AMD shareholders are expected to approve on Feb. 10 the creation of The Foundry Co., which is the temporary name of the partnership between AMD and Advanced Technology Investment Co. of Abu Dhabi, and represents AMD's spun off manufacturing operations.

Other names that were in trade to the upside this week included Human Genome Sciences Inc.

The stock markets shrugged off dismal employment numbers and rallied on the prospect of government intervention that is hoped to lift the U.S. out of a deep recession.

The Labor Department said Friday that U.S. employers slashed 598,000 jobs in January, the biggest monthly decline since December 1974. The current unemployment rate climbed to 7.6%, up from 7.2% in December and up from 4.9% a year ago.

B of A collapses, rebounds

After trading as low as 272.5 on Thursday, Bank of America's series L 7.25% convertible preferreds jumped Thursday and Friday to settle at 416.4.

Shares of the Charlotte, N.C.-based bank surged $1.29, or 37%, to $6.13 in extremely heavy volume.

The paper had weakened throughout the week, having traded at 460 on Monday, amid investor fears that the government might have to step in to nationalize the bank to prevent it from failing.

Traders and investors were heartened by talk that senator Christopher Dodd (D-Conn.) didn't think that was likely and of discontinuing mark-to-market rules, under which banks must record securities' prices at market levels to ensure that margin requirements are being met.

Treasury secretary Timothy Geithner is expected to unveil the government's financial rescue plan on Monday, and if it discontinues mark-to-market even temporarily it is hoped that it will make it easier for banks to lend without depleting cash reserves mandated by those rules.

Citigroup's 6.5% convertible perpetual preferreds ended the day at 13.65, up from 13 on Thursday. Shares of the New York-based financial services company gained 38 cents, or 11%, to end at $3.91.

Meanwhile, Fifth Third Bancorp preferreds jumped to 360 versus a share price of $2.63 on Friday, from 270 versus a stock price of $1.70 on Thursday. The underlying shares of the Cincinnati-based bank stormed ahead by 60%.

PNC Financial's 4% convertibles due 2011, which have traded consistently in the low to middle 90s, with an average price of 92.5, added 0.5 point to end at 93 on Friday. Shares of the Pittsburgh-based bank jumped $2.94, or 9%, to $32.57.

AMD regains ground

Advanced Micro Devices was one of the highest volume names of the day at one major New York-based investment bank, a sellsider said.

The AMD 5.75% convertible senior notes traded at 36.5 on Friday, which was up from 35.5 on Thursday and 32 on Monday.

The move upward represents a recouping of some value lost in January as this paper traded between 37 and 39 on Jan. 9.

AMD's 6% convertible senior notes due 2015 traded at 32.75, compared to 32.50 on Thursday and 30 on Monday.

Shares of the Sunnyvale, Calif.-based semiconductor company have also been trending up for the last two weeks. On Friday, they were up 2% at $2.41 at the close.

The AMD issues "have been inching up," a Connecticut-based sellside trader said of the issues that are still trading at distressed levels.

One sellsider, when asked why AMD was inching up in active trade, said he didn't know the reason, but perhaps it was because there is a "lack of other paper to buy."

The comment speaks to the issue of the convertibles market being so much smaller than it was in the recent past due to the large volume of issuer buybacks that have occurred since prices have been depressed and due to the lack of new issuance in the wake of the credit crunch.

Human Genome's 2011s jump

Human Genome's 2.25% due October 2011 jumped to trade at 49.625 versus a share price of $2.69 on Friday, compared with 42 versus a share price of $2.35 on Wednesday.

The Human Genome 2.25% convertibles due 2012 traded at 39 versus a share price of $2.69 on Friday, compared to 38 versus a share price of $2.35 on Wednesday.

Shares of the Rockville, Md.-based biopharmaceutical company jumped 17 cents, or 7%, in heavy volume.

There was no particular news in the name that would have prompted the jump, sources said.

Mentioned in this article:

Advanced Micro Devices Inc. NYSE: AMD

Bank of America Corp. NYSE: BAC

Citigroup Inc. NYSE: C

Fifth Third Bancorp Nasdaq: FITB

Human Genome Sciences Inc. Nasdaq: HGSI

PNC Financial Services Group Inc. NYSE: PNC

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