Convertibles lose 3.1% in April, now 7% lower year to date, Citigroup says

New York, May 9 - The convertible market lost 3.1% in April, extending its year-to-date loss to 7.0%, Citigroup convertible analyst Adrian Miller said in a report Monday.

A large part of the decline was caused by continued weakness in the auto sector, he said.

Ford Motor Co. and General Motors Corp. make up 3.8% of the market and the decline in their stocks and further widening in their credit spreads was "a major catalyst" in the month's losses.

But the convertible market was also hit by the greater losses in small-cap names. Stocks with capitalizations below $2 billion lost 6.5% in the month while those above $20 billion declined 2.1%. Since overall convertible performance is more sensitive to the smaller names, the market did worse than most equity indexes would suggest.

The convertible arbitrage index was down 3.5% on the month, according to Citigroup, bringing its year-to-date decline to 6.7%.

In his commentary, Miller noted the threat of selling by hedge funds has deterred buying by investors who believe issues have fundamentally cheapened. While in other circumstances they might step in, fears of more selling have kept them out of the market.

Also hurting convertibles was the widening of credit spreads in the high-yield market. April saw junk spreads widen 74 basis points following a 67 basis point widening in March.

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