Morning Commentary: Convertibles see stronger bid; SanDisk active; Alcoa mandatories lag shares

By Rebecca Melvin

New York, July 9 – U.S. convertibles players were back in the market on Thursday with a strong bid, seemingly encouraged by the snapback in Chinese stocks and better U.S. stock markets at the open, a New York-based trader said.

“Everything is to buy. We had lifts on a lot of things right out of the gate,” the trader said.

China’s Shanghai Composite index climbed 5.8% on Thursday after tumbling by about the same amount on Wednesday, which was a three-month low.

SanDisk Corp.’s 0.5% convertible was among the issues catching a bid in the early going, with that bond quoted at 95, or flattish compared to Wednesday.

Other beaten down names – especially below par ones – were in demand, the trader said. “It’s risk on,” he said.

Elsewhere, Alcoa Inc.’s 5.375% mandatory convertible preferreds due 2017 were active and last seen up $1.03, or 2.7%, to $39.79. That compared to the aluminum producer’s common stock, which was up 30 cents, or 3%, to $10.80.

Alcoa kicked off a new earnings season late Wednesday when it reported second-quarter results that missed on earnings but were better-than-expected on revenue. Shares were up 3%.

Alcoa reported net income of $140 million, or 10 cents a share, compared to net income of $138 million, or 12 cents per share, in the year-earlier quarter.

Excluding one-time items, earnings were 19 cents, which was below expectations for earnings of 22 cents per share.

Revenue was up 1% to $5.9 billion, compared with the $5.81 billion estimate.

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