Convertibles mostly hold steady; Micron trades 'OK' as its shares slide; Nasdaq steady

By Rebecca Melvin

New York, June 29 - The convertible bond market seemed to hold its own Tuesday despite a slide in equities as investor fears flared again about the prospects for global economic recovery.

"For as much as the S&P was down, it didn't seem like things were that heavy for sale," a New York-based trader said.

Even though convertibles mostly held in, however, it was still a difficult session, another New York-based trader said.

Micron Technology Inc. traded "fine" or "did OK," sources said, despite a skid of 13.5% in the Micron common stock after the Boise, Idaho-based memory chip maker posted a strong fiscal third quarter but disappointed on its outlook for the current quarter.

"It probably expanded a bit depending what delta you were hedged on," a Connecticut-based sellside trader said.

Overall, convertible volume improved compared to Monday, but the mood was pessimistic, precipitating some sellers that typically would have stuck to the sidelines in a rocky market like Tuesday's.

"When you've got a market like converts, it's better to trade some stock and adjust hedges than to make a mistake trading in or out of an illiquid position," a trader said.

Most of the names atop the volume chart were high-quality standbys like Amgen Inc., Medtronic Inc. and EMC Corp. But Tuesday there was also a high-quality name that typically doesn't trade that much, Nasdaq OMX Group Inc.

Denver-based gold mining company Newmont Mining Corp. was also seen in trade as gold prices gyrated Tuesday.

Transocean Ltd. saw mostly odd lots of its series A convertibles trade Tuesday, although a size print went up at 97.50. The Transocean C paper was more often referenced and was seen steady much of the day.

Ford Motor Co. saw its newer 4.25% convertibles due 2016 also trading in odd lots, but it was fairly resilient, with a trade at 124.5 versus the underlying common stock at $9.90.

The Ford bonds were indicated to close lower at 121.7 on a 5.3% stock slide.

Selling hits broader markets

Ahead of the U.S. market open, overseas markets succumbed to a wave of selling precipitated by word that China's leading economic indicators for April were revised lower, showing only a 0.3% increase when they had earlier showed a 1.7% increase.

Europe's stock markets also took a beating. They settled with losses of 3% to 4%.

Then, back at the ranch, the Conference Board's Consumer Confidence Index for June came in at 52.9, which was more than nine points below where it had been expected, and down significantly from May when a confidence number of 62.7 was posted.

With the upcoming July 4 holiday, convertible traders didn't expect there would be much strength behind any bounce back. But there were a few data points coming up as well that could prompt strong moves. They included the ADP National Employment Report, the Labor Department's monthly jobs number and purchasing managers, or Institute for Supply Management, manufacturing report.

"Those could drive things one way or the other, or auto sales even, could have an impact," a trader said.

On Tuesday, the Dow Jones Industrial Average fell 268.22 points, or 2.7%, at 9,870.30; the Nasdaq Stock Market fell 85.17 points, or 3.9%, at 2.135.18; and the S&P 500 index slid 33.33 points, or 3.1%, to 1,041.24.

Micron trades 'fine'

Micron's 1.875% convertibles due 2014 traded at as low as 87.3 but ended the session around 90.8, which was little changed on the day.

It did OK depending on the delta at which it was hedged, which was probably around 55%, according to a source.

Micron's 4.25% convertibles due 2013 traded last at 202, which was down about 7 points but off its low, which was 199.

"I got the sense that they did OK in the morning," a sellsider said.

Micron shares shed $1.35, or 13.5%, to $8.67. The shares closed Monday at $10.02.

The company said late Monday that it earned $939 million, or 92 cents a share, on revenue of $2.29 billion for its fiscal third quarter, which reversed a year-earlier loss of $301 million, or 37 cents a share, on $1.11 billion in sales.

Nevertheless Micron officials said they expect DRAM shipment growth to be flat or just slightly above third-quarter levels in the fourth quarter. The company didn't provide a specific earnings or revenue outlook for the fourth quarter, however.

A pair of analysts maintained their ratings on the company subsequent to the earnings report. A Sterne Agee analyst kept a "buy" rating on the company and said the company's 2011 earnings power is growing, and a Pacific Crest analyst kept an "outperform" rating, calling the quarter's results strong, but noted the fourth quarter looks flattish for core business.

Nasdaq steady in trade

Nasdaq's 2.5% convertibles due 2013 traded at 95.25 bid, 95.375 offered.

Shares of the New York-based stock exchange company ended down 81 cents, or 4.3%, at $18.05.

The Nasdaq convertibles "don't trade often, but when they do they will trade in blocks. They are an investment-grade name and every now and then a big seller emerges and the paper changes hands," a New York-based trader said.

Mentioned in this article:

Ford Motor Co. NYSE: F

Nasdaq OMX Group Inc. Nasdaq: NADQ

Newmont Mining Corp. NYSE: NEM

Micron Technology Inc. NYSE: NU

Transocean Ltd. NYSE: RIG

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