Amgen edges higher; Gilead mixed to higher; Jefferies lower; MF Global adds a few points

By Rebecca Melvin

New York, Dec. 19 - Larger, better-quality names were the traders of choice in the convertible bond market again on Monday, with the exception of Jefferies Group Inc., which was also active and lower on the day.

Another trend continuing from last week was selling of unwanted positions heading into the end of the year, leaving the convertible market feeling a little heavy. But there was steady demand for the larger, safer bonds, leaving that segment of the market unchanged to higher.

Amgen Inc.'s 0.375% convertible was the most active issue of the day, and higher by about 0.2 point. The underlying shares of the Thousand Oaks, Calif.-based biotechnology moved up to near their 52-week high in continued reaction to news late last week that the company is raising its quarterly dividend nearly 30% and that chairman and chief executive Kevin Sharer is retiring and being replaced by president and chief operating officer Robert Bradway.

Also in Amgen news, the company and Parsippany, N.J.-based generic drug maker Watson Pharmaceuticals, announced after the market close an agreement to collaborate on developing generic-type versions of cancer drugs.

The companies said the development and commercialization of "biosimilar" products will require investment and risk unlike a pure brand or generic model.

Fellow biotech Gilead Sciences Inc. was active again in the convertibles market. The Gilead 1.625% bond was more active than its two sister issues and was better by about 0.25 point on a dollar-neutral basis, a New York-based trader said. The other two Gilead convertibles, including the 1% convertibles due 2014 and the 0.625% convertibles, were trading in line with the underlying shares.

Medtronic Inc. was also more active than usual, but little changed, at about 100.5 bid, 100.625 offered, the trader said.

"Most of the health care names were stronger," the trader said.

Elsewhere, Jefferies Group Inc. was down about 2 points on the day ahead of the quarterly earnings announcement from the New York-based mid-sized investment bank expected early Tuesday.

Meanwhile, bankrupt MF Global Holdings Ltd. saw its three convertible bonds and straight debt all trading up a couple of points to 32 bid, 33 offered, with the last print going up at 34, compared to 31 last week.

In the broader markets, trading volumes were on the light side, and equities ended lower on the day after starting out the session higher.

Light trading is expected to be a hallmark of this coming holiday week, which will end with an early close by the bond markets on Friday and with markets remaining closed on Monday in observance of Christmas. Hanukkah begins this week as well.

Amgen edges higher

Amgen's 0.375% convertibles due 2013 traded at just under 99, which was "20 cents higher on the day," a trader said. They started out higher and stayed put, despite a move lower in the underlying shares.

There were "multiple buyers and multiple sellers" in the Amgen convertibles, which were notably active, the trader said.

He said the stock has been reacting favorably to news of the dividend hike and management changes.

The company, which began paying a dividend last year, announced a first-quarter payment of 36 cents a share to shareholders of record as of Feb. 15, 2012. The previous quarterly dividend payment was 28 cents a share.

In addition to Bradway becoming chief executive on May 23, and chairman at the end of the year, research head Roger Perlmutter will retire in February to be replaced by Sean Harper, who is chief medical officer and in charge of global development, Amgen said last week.

Meanwhile, under the terms of the new agreement with Watson, Watson will contribute $400 million in development costs aimed at making biosimilar versions of various cancer drugs, which were not named.

Gilead trades mixed to higher

Gilead's 1.625% convertibles due 2016 were the most active Gilead convertible on Monday, trading around 109, which was up about 0.25 point on a hedged basis.

In addition, the Gilead 1% convertibles due 2014 traded "in line" at 105.5 bid, 106 offered.

The Gilead 0.625% convertibles due 2013 traded a little bit, also in line with the underlying shares.

Shares of the Foster City, Calif.-based company ended higher by 31 cents, or 0.8%, at $37.47.

The bonds vary in terms of maturity and appeal to different investors, a trader said, regarding the mixed trade of the three issues.

The convertibles were pulled into trade to match the action in the underlying shares, which were up on a down day in equities overall, the trader said.

Trading in the Gilead convertibles was "not to the same degree" as trading activity in the Amgen convertibles, he said.

Earlier this month, the biopharmaceutical company priced $3.7 billion of straight notes in four tranches. The company is using loans, notes and cash to pay for the Pharmasset acquisition, which was unveiled in November.

Pharmasset said Friday it will modify its hepatitis C trial after one of its drugs was linked to liver-function abnormalities.

Jefferies slips back

Jefferies' 3.875% convertibles due 2029 traded at about 77.875, which was down 2 points on the day.

Jefferies shares fell 51 cents, or 4%, to $11.80.

"There was large activity in the higher quality names with the exception of Jefferies," a New York-based trader said, adding that he hadn't seen any news on the company that would have spurred the trades.

Jefferies was expected to issue its fiscal fourth-quarter results and hold a conference call early Tuesday.

Mentioned in this article:

Amgen Inc. Nasdaq: AMGN

Jefferies Group Inc. NYSE: JEF

Gilead Sciences Inc. Nasdaq: GILD

MF Global Holdings Ltd. Pink sheets: MFGLQ

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