Convertibles firm in quiet trade as equities slide in early action; Tesla underperforms

By Rebecca Melvin

New York, May 6 – Convertibles valuations held firm despite a sell-off in equities on Monday, but trading action was light, according to several convertible bond market sources.

Despite the convertibles space’s overall resilience, Tesla Inc.’s convertible bond issues contracted by 0.25 point or more on a dollar-neutral, or swap, basis and were among the few bonds that underperformed on the day, a New York-based trader said.

The Tesla bonds were a centerpiece of trade on Thursday and Friday when the electric car manufacturer printed a new convertible of $1.6 billion size. On Friday, the new convertible, the Tesla 2% notes, or D tranche, expanded, but the two older Tesla convertibles contracted.

U.S. and global equities opened sharply lower amid renewed trade worries, but U.S. indices recovered intraday to end only modestly lower by 0.25% and 0.5% on the day, respectively. The Dow Jones industrial average closed down 66.47 points, or 0.3%, to 26,438.48, after trading down more than 450 points early in the session.

Trade worries resurfaced after president Donald Trump said on Sunday that he might consider raising U.S. tariffs on $200 billion in Chinese imports to 25%, compared to the current 10% tariff level. On Monday, U.S. trade representative Robert Lighthizer told reporters the tariff increase will go into effect at 12:01 a.m. ET on Friday. But the U.S. would reconsider the duties if talks get back on track, treasury secretary Steven Mnuchin also said.

The statements were made ahead of a new round of trade talks between the United States and China set to begin this week in Washington.

The market turbulence on Monday also came on the heels of a strong jobs market report last week that bodes well for the U.S. economy. The Labor Department said on Friday that non-farm payrolls rose by a better-than-expected 263,000 jobs for April and the unemployment rate ticked down to 3.6%, which was the lowest level since December 1969, from 3.8% in the previous month. Many economists had been expecting a slower pace of hiring for April, and for the unemployment rate to remain steady at 3.8%.

Meanwhile as stocks bounced around, U.S. convertibles remained quiet.

“It was about the quietest that I’ve seen it in a while,” a New York-based trader said regarding Monday’s session. “I’ve got nothing for you.”

Tesla underperforms

Tesla’s new 2% convertible bonds were closed on Monday at 104.9375 bid, 104.3125 offered versus an underlying share price of $255.34, a New York-based trader said.

Tesla’s new $1.6 billion convertible hit the market on Friday and expanded in initial action as the older Tesla paper contracted. The electric car manufacturer also priced a deal of common stock for a total capital raise of $2.35 billion.

But all three issues contracted on Monday. Tesla’s older 1.25% convertible notes due 2021 were at 100.5, according to Trace data, after trading as high as 101.875 on Friday and closing that session at around 100.75.

Tesla’s 2.375% convertible notes due 2022 traded little changed at 105.5 early Monday after ending the session at about that level on Friday, having traded up to as high as 106.5 early in the session.

Tesla shares closed up 31 cents, or 0.1%, at $255.34. Earlier in the session they were down $2.32 or, 0.9% at $252.72.

Elsewhere, Atlas Air Worldwide Holdings Inc.’s 1.875% convertibles due 2024 were trying to find their footing on Monday, trading with a handle of both 102 and 104, which brackets the convertible’s recent trading range.

The trading action of the shares of the Purchase, N.Y.-based outsourced aircraft and aviation services company was opposite that of the broader market. Shares moved lower into the afternoon session and closed near their lows, down $1.90, or 4.1%, at $45.95.

Convertibles issuer Immunogen Inc.’s shares popped on Monday and closed up 15% at $3.30, a gain of 42 cents.

Overall the market was super quiet, a New York-based sellsider said. “Even with the move in stocks, it’s quiet,” the sellsider said.

Mentioned in this article:

Altas Air Worldwide Holdings Inc. Nasdaq: AAWW

Immunogen Inc. Nasdaq: IMGN

Tesla Inc. Nasdaq: TSLA

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