Liquid names in trade; U.S. Steel lags underlying shares; Cameron trades ahead of call

By Rebecca Melvin

New York, June 29 - Several large, liquid names were active in the convertible bond market on Wednesday. Medtronic Inc., Amgen Inc. and Transocean Ltd. were trading, names that used to trade actively every day but lately had seen only sporadic action.

Volumes improved from Monday's dismal levels but were still lightish, and it was difficult to get an exact read on the convertible market's performance, sources said.

It appeared that some of the market's credit-oriented names, which have suffered in recent weeks, ticked higher with stronger stocks, but some of the in-the-money, equity sensitive names looked to have paused.

"[Volume] was in line with the meaty part of last week, but it's still where it has been, and that's on the light side," a New York-based trader said.

Of those equity-sensitive names, United States Steel Corp. saw its convertibles active and trade up by about 5%, but the underlying shares gained 5.5%, a New York-based desk analyst said.

In a note Wednesday, Deutsche Bank AG said it believes steel demand and prices are poised to increase.

Cameron International Corp. was active, with the underlying shares up, but action appeared to be driven by an upcoming call, a trader said.

Cameron is calling the approximately $371 million outstanding of its 2.5% convertibles due 2026.

"Cameron is getting called in less than a week, so there may be some kind of a play there, involving the call and conversion of the bonds," the trader said.

Medtronic trading appeared to be spurred by a medical journal publication that asserted the Minneapolis-based medical device maker downplayed side effects related to its spinal treatment Infuse, a genetically engineered protein used to spur the growth of new bone after spinal surgery.

Cubist Pharmaceuticals Inc.'s 2.5% convertibles due 2017 retraced at least some gains notched Tuesday, trading last at 137.95, according to Trace data, which was down about 3 points compared to Tuesday's 141 level, which had gained 4 points on the day.

The Lexington, Mass.-based biopharmaceutical company is the maker of the Cubicin antibiotic and had sales data that helped the stock early in the session, a trader said.

Markets in general Wednesday were buoyed by the Greek parliament's approval of a $40 billion austerity package, which will allow the country to obtain desperately needed international funds to avert a default on its debt. Equities gained for a third straight day on optimism regarding the Greek debt situation, and high-yield debt was higher, particularly retail and telecom issues, a New York-based trader said.

'Not out of the woods yet'

But Greek's yes vote in parliament was notched amid violent protests in the streets of Athens, and the debt crisis is by no means resolved. There is another vote slated for Thursday to implement the $40 billion austerity package.

"I would say we're not out of the woods yet," a convertibles trader said about where the markets go from here. "There are a lot of things that need to be resolved. The Greek vote alone isn't enough to give people confidence."

"I don't think there's that much more conviction," the trader said, adding, however, that he was surprised that stocks didn't fade into the session's close Wednesday.

He said there was speculation that trading positions were being bid up so that they could be marked up for the end of the month, which has not been a stellar one for trading desks.

"If you've got a big position, and you threw a bid out there for $1 million more, bidding it up, then you get to mark it that much higher," the trader said.

The large, liquid names in the convert space, referred to as the "boring stuff," by one trader, are the first things that are sold during risk-off trade, and perhaps the first things bought back during risk on, he said.

U.S. Steel up 5%

U.S. Steel's 4% convertibles due 2014 traded at 158.25 versus a share price of $45.75 on Wednesday, according to a New York-based sellsider. Late Wednesday, they were 58.354, which was up 6 or 7 points on the day, according to Trace data.

That gain was on top of Tuesday's rise, when the U.S. Steel convertibles added 3.5 points to 151.49, according to Trace.

Shares of the Pittsburgh-based integrated steel producer gained $2.44, or nearly 6%, on Wednesday to $45.85 at the close.

Spurring upward momentum was a positive note out from Deutsche Bank, a sellsider said.

The Deutsche Bank note asserted that U.S. steel producers will benefit from a demand pick up from China as that nation's inventories empty and industrial activity lifts in the second half.

Deutsche raised its forecast for benchmark hot-rolled coil prices by 1% to an average $830 a ton in 2011 and $772 a ton in 2012.

Steel prices have fallen since March amid sputtering economic recovery. U.S. construction and manufacturing was off and there were disruptions in the automotive supply chain after the earthquake and tsunami in Japan.

U.S. Steel expects to report a "significant" second-quarter operating profit when it releases results on July 26, Gimme Credit analyst Evan Mann noted in another report out on Wednesday.

Gimme Credit is an independent research firm.

Mann said that Gimme Credit looks for U.S. Steel's "EBITDA to be in line with the $533 million consensus estimate and a significant increase from $345 million in the second quarter of 2010."

U.S. Steel believes that global demand will recover gradually, with second-quarter demand for containers, appliances, pipes and construction remaining firm, although service and processing centers might cut back on buying steel to moderate inventories, Mann noted.

Mentioned in this article:

Amgen Inc. Nasdaq: AMGN

Cameron International Corp. NYSE: CAM

Cubist Pharmaceuticals Inc. Nasdaq: CBST

Medtronic Inc. NYSE: MDT

Transocean Ltd. NYSE: RIG

U.S. Steel Corp. NYSE: X

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