Convertibles decline on weak jobs report, pare losses by the bell; liquidity constrained

By Stephanie N. Rotondo

Phoenix, Oct. 2 – The convertible bond market was again under pressure on Friday, though there was a slight rebound by the bell.

The space followed the trend of the broader markets, which were down sharply early in the day as a new jobs report came in weaker than expected.

The September jobs report showed the private sector adding just 142,000 jobs during the month, well below the expected addition of 203,000 jobs. Additionally, figures for August and July were downwardly revised.

The news was prompting market players to speculate that the Federal Reserve would push an interest rate increase until early 2016.

But a rally in commodities helped lift the markets higher, thus the convertibles arena also looked to pare its losses.

Liquidity in the convertible market also remained weak, with one market source noting that “nothing” was going on.

“It’s pretty dead,” another trader said.

Gilead Sciences Inc. was notable for the day, as analysts at Morgan Stanley cut its rating on the stock to equal weight from overweight. The rating change was due to broader industry concerns about high drug prices and the politics surrounding them.

Initially, Gilead was trending lower, both in the converts and in the equity. By the end of the day, however, both securities were seen with a firmer tone.

At mid-morning, the 1.625% convertible notes due 2016 were pegged at 422.375 by one market source. At the close, another source saw the issue at 432.25.

The second source noted that the paper was volatile, trading as low as with a 420 handle. Trades just a few days ago were around 430.

In the equity, the stock closed up a penny at $98.28, though it spent most of the day down. The stock opened at $95.20 and traded as low as $94.37.

The Priceline Group Inc.’s debt was also trading around in the final session of the week. The 0.9% convertible notes due 2021 were down about a third of a point early Friday, trading at 98.625. The 0.35% convertible notes due 2020 were meantime seen at 118.

A second source said the 0.9% paper was unchanged, trading in a 98.5 to 98.625 range. The 0.35% bonds were also deemed steady, trading around 118.

As for the company’s equity, it was trading off $2.79 cents to $1,244.29 at mid-morning. But like the rest of the market, the shares came back to finish up $18.60, or 1.49%, at $1,265.68.

There was no fresh news out, however, on the online travel reservation company.

Mentioned in this article:

Gilead Sciences Inc. Nasdaq: GILD

The Priceline Group Inc. Nasdaq: PCLN

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