Convertibles lag after crude oil, equities pare sharp losses; Monster Worldwide plunges

By Rebecca Melvin

New York, Feb. 11 – Despite a late-session rebound in oil prices and equities that helped those markets pare sharp losses on Thursday, U.S. convertibles were initially unaffected by the late move, with ongoing pressure on anything risk- and commodity-related and low liquidity.

“High-yield was off again and convertibles were pretty quiet,” a Connecticut-based trader said.

Selling in the broader markets abated after headlines recounted comments by the United Arab Emirates’ energy minister that members of the Organization of Petroleum Exporting Countries may now be more open to cutting output.

“Everyone (in the Organization of Petroleum Exporting Countries) is ready to cooperate” the minister, Suhail bin Mohammed al-Mazrouei, told Sky News Arabia. But his comments were qualified by the need for total cooperation from everyone for a cut to be made.

Oil prices have been falling amid a global supply glut in which producers continue to pump at high levels to retain market share rather than reduce production in response to market demand. In the United States, where some crude storage facilities are nearing capacity, oil production remains at 9.2 million barrels a day, which is slightly lower than previous levels, according to the latest statistics. OPEC pumps oil at a rate of 32 million barrels a day.

As for whether the late-session development would help the high-yield and convertibles markets, the trader said, “It might shake things up a bit, but people are still hiding. There is nothing wildly different in the last few days with commodity pressure, and people are either heading for the doors or hiding under their desks.”

There was some focus on protective trades early Thursday as fear gripped global markets regarding vulnerabilities opened up by the collapse in crude oil and lower global growth.

“I think the focus at the institutional level is to not get their eyes ripped out by the market,” a New York-based trader said regarding convertibles players.

Early Thursday, Priceline Group Inc., Newmont Mining Corp. and Intel Corp. were the most actively traded names. Meanwhile the convertibles of Twitter Inc., which reported quarterly results late Wednesday that sent the common shares lower, were mostly quiet, with a trade at 79, which was down from 80 in the Twitter 1% convertible due 2021, according to Trace data.

Priceline’s 0.9% convertibles due 2021 were little changed at 96.

But among a lot of other names, “there is lots of shock and awe at their marks,” the trader said. Some issues gave in under the pressure and gapped lower on Thursday. Whiting Petroleum Corp.’s convertible bonds were indicated to have traded down to 40 from 44.

Monster Worldwide Inc.’s convertibles plunged after the New York-based employment-services website offered disappointing guidance on its current quarter and shares were downgraded to “market perform” from “outperform” by FBR Capital.

Monster’s 3.5% convertibles due 2019 fell to 82.50 bid, 83 offered from about 105 as shares plunged 36% to $2.72.

Monster projected 2016 first-quarter earnings in the range of 6 cents to 10 cents per share, which was lower than the consensus forecast of 13 cents per share. For the most recent quarter, earnings were in line with expectations and revenue was down 6%.

“We underperformed in North America in our transactional business as a result of competitive pressures and seasonality, as well as macro considerations in Canada,” chief executive officer Tim Yates said in a statement.

In the broader markets, equities and bond yields plunged early. The yield on the benchmark 10-year U.S. Treasury moved down to 1.6%. The S&P 500 stock market was down 38.61 points, or 2%, to 1,813.25 at late morning. But the Nasdaq stock market, which also saw a steep decline, ended nearly unchanged. Gold was up 4.6% at $1,250 per ounce and among currencies, the safe-haven Japanese yen was higher.

Meanwhile, West Texas Intermediate crude oil hemorrhaged for most of the day, trading down 4% to a close of $26.13 a barrel on the New York Mercantile Exchange. That level marked a low not seen since 2003. But later on Thursday, the WTI was down only 0.6% at $27.30 per barrel.

Stone Energy Corp.’s convertibles traded last unchanged on the day at 64 after having traded intraday at as low as 60, according to Trace data.

The wave of selling started overnight. European stock indices were left sharply lower, led by lower bank shares. Also in Europe, the Swedish central bank cut its rates further into negative territory.

Looking ahead to Friday, convertibles issuer FireEye Inc. reported mixed earnings late Thursday. The cyber security firm warned of slowing growth in cyber security spending. But FireEye shares were fractionally higher in after-hours trade after closing the session lower.

Also after the market close, Pandora Media Inc. reported disappointing results, including a wider loss that sent its shares down in after-hours action. But before the close, headlines swirled around the internet radio company that it is considering a sale of itself, and that had boosted shares.

Mentioned in this article:

Chesapeake Energy Corp. NYSE: CHK

Intel Corp. Nasdaq: INTC

FireEye Inc. Nasdaq: FEYE

Monster Worldwide Inc. NYSE: MWW

Newmont Mining Corp. NYSE: NEM

Pandora Media Inc. NYSE: P

Priceline Group Inc. Nasdaq: PCLN

Stone Energy Corp. NYSE: SGY

Twitter Inc. Nasdaq: TWTR

Whiting Petroleum Corp. NYSE: WLL

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