Convertibles mostly quiet ahead of Thanksgiving break; Medtronic erases some gains; Ford down

By Rebecca Melvin

New York, Nov. 25 - The convertible bond market was quiet on Wednesday, despite higher shares, having gradually grown more subdued during the three sessions leading up the last day before markets are closed for the Thanksgiving holiday.

"There's nothing going on. Converts have sort of settled in," a Connecticut-based sellside trader said.

Economic data on Wednesday caused stocks to rise, and there was a sell off in the bond market. But that didn't translate into action in the convertible market, according to a New York-based sellside trader.

"It's dead," the sellsider said, adding that he didn't expect activity to pick up again until Monday.

"Then we'll have the countdown until the end of the year, with people shoring up their books and getting ready for another quiet period. But there will be some level of activity for two or three weeks," the sellsider said.

U.S. equities zigzagged during the week, marking broad-based gains on Monday, but falling on Tuesday, then turning mixed, and ultimately higher on Wednesday on the back of positive jobs data and a strong consumer spending report.

The Labor Department reported that weekly jobless claims fell to 466,000, the lowest weekly level in more than a year and well below the 500,000 economists had expected.

Nearly 4.2 million people were receiving extended benefits in the week ending Nov. 7, a drop of 18,254 from the previous week.

Meanwhile, the Commerce Department reported that consumer spending rose 0.7% last month, following a 0.6% drop in September. It was the best showing since a 1.3% jump in August, which was attributed to a car-buying spree driven by the government's Cash for Clunkers program.

Traders said the positive economic data didn't influence convert trades, and no notable names for the day were put forward.

Medtronic Inc. convertibles retraced gains Wednesday, with the longer-dated 1.625% convertibles down more than a point to 102, and the shorter 1.5% convertibles shedding 0.125 point by late afternoon trading, as the company's shares hung about 0.5% lower.

On Tuesday, the Medtronic 1.625% convertibles moved up several points as its shares surged on positive earnings, making them more attractive to hedge investors.

Ford Motor Co. convertibles were down about 2 points despite relative strength in their underlying shares.

In the primary market, the week's three days brought only a handful of international deals and no new deals in the United States.

A subsidiary of Indonesia's PT Bumi Resources Tbk. priced $300 million of seven-year convertibles at par to yield 5% with an initial conversion premium of 30% on Monday.

On Tuesday, Canada's NAL Oil & Gas Trust priced C$100 million of five-year convertible debentures to yield 6.25% with an initial conversion premium of 29.5%; and Aquarius Platinum Ltd. sold $250 million of six-year convertible bonds to yield 4% with an initial conversion premium of 22.5%.

On Wednesday, Asahi Glass Co. Ltd. priced two ¥45 billion tranches of 0% convertible bonds, one maturing in three years and the other in five.

Medtronic retraces most gains

Medtronic's 1.625% convertibles due 2013 - the longer dated of a pair of Medtronic bonds - were seen trading right around par, which was down from trades in size at 102 on Tuesday.

The Medtronic 1.5% convertibles due 2011 were steady to down 0.125 point, also at par.

Shares of the Minneapolis-based medical device maker settled down 7 cents, or 0.2% at $43.18, after having jumped 6.7% on Tuesday.

The company reported earnings that beat estimates and raised its guidance.

The higher stock price generated interest from hedge players in this name that had previously been a typical outright play.

Medtronic's fiscal second-quarter earnings jumped 59%, and it raised its fiscal 2010 earnings guidance to a range of $3.17 to $3.22 per share from prior guidance of $3.10 to $3.20 per share.

The company also backed its outlook of increasing sales by 5% to 8%, excluding the impact of foreign currency, for the second half of the fiscal year and beyond.

The company posted a profit of $868 million, or 78 cents a share, in the quarter ended Oct. 30, up from $547 million, or 48 cents a share, a year earlier. Excluding one-time items, Medtronic said per-share earnings rose to 77 cents from 67 cents, which beat the average analysts' forecast of 74 cents a share.

Sales rose 7.5% to $3.84 billion, which was better than a $3.75 billion forecast.

Ford taps the brakes

Ford's 4.25% convertibles due 2016 traded at 111.25 on Tuesday, which was down 2.125 points from Tuesday. Shares of the Dearborn, Mich.-based automaker were mostly toggling the flat line, and up slightly late afternoon trading. But they ended unchanged at $8.81.

On Monday, the Ford 4.25% convertibles traded at 112.25 versus a share price of $8.75, which was the same level at which they traded on Nov. 16, a week earlier.

Mentioned in this article:

Ford Motor Co. NYSE: F

Medtronic Inc. NYSE: MDT

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