Citigroup convertible index up 0.1% while underlying stocks rise 1.8% for May

By Ronda Fears

Nashville, June 2 - Citigroup Global Markets Inc. convertible analyst Adrian Miller said that despite the convertible market's underlying stocks advancing 1.8%, weakness in the bond market and select large cap convertibles dampened the firm's convertible index to a paltry 0.1% gain

While the equity market finally turned positive in May after two monthly losses, corporate bonds continue to find the world a challenging place and that has led to uneven performance across the convertible market, Miller said in a report.

Convertibles within the small-cap group lagged their larger cap cousins, he said. This was partially due to valuation issues, while other weakness was found in industry sector concentration.

As a result of "energy prices running amuck, the transportation sector continued to take it on the chin," the analyst noted. The group, laden with airline paper, was down 1.7% in May and year to date is the worst performing sector, off 10.9%, he added.

During May the Citigroup convertible index's weighted average delta increased to 54.5% from 53.9% in April, and among cash-paying bonds delta increased to 59.0% from 58.1%.

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