Convertibles quiet ahead of July Fourth; some follow-through action in Newmont, Molson

By Rebecca Melvin

New York, July 3 - The convertible bond market was quiet Wednesday and the tone mixed with low liquidity ahead of an early session close before the Fourth of July holiday on Thursday.

Some market sources cited a better bid in the market than offers to sell, creating a slightly stronger tone, while another source said the market felt "heavy."

Meanwhile the comment of a fourth market player seemed accurate as well: "There really isn't a tone. Everybody is out of the office or waiting for employment numbers on Friday."

There was light follow through trading of some of the names that had been active on Tuesday, like Newmont Mining Corp. Its 1.25% convertible due 2014 was among the most actively traded issues on Wednesday and a little higher for a second day after shares among those gold miners were downgraded by Jefferies and as gold and the mining sector remain volatile.

Molson Coors Brewing Co.'s 2.5% convertible, which matures at the end of this month, was trading again and slightly lower again, slipping another 0.125 point as it edges ever closer to an even par.

Navistar International Corp. also traded, looking in line with where the paper has been in recent weeks, but changing hands lower by nearly 2 points at 95 by late morning in tandem with lower shares.

There was no activity in Healthways Inc.'s new 1.5% convertibles, which ended about flat on its debut on Tuesday after the Nashville-based health improvement company priced an upsized $125 million of five-year convertible senior notes at the midpoint of talked terms.

Equities edged higher Wednesday ahead of their early close. Both stock and bond markets will reopen on Friday for a full session.

Economic data was mixed. The ADP National Employment Report was better than expected Wednesday, showing that private payrolls increased 188,000 last month, which was up from 134,000 jobs in May. Economists had expected a gain of 160,000 jobs.

In a separate report, the Labor Department said initial claims for state unemployment benefits slipped 5,000 to a seasonally adjusted 343,000. The reports were released ahead of the Labor Department's jobs report Friday.

But the U.S. trade deficit widened sharply in May as U.S. imports strengthened, but U.S. exports fell, the Commerce Department reported. The trade gap swelled more than 12% to $45 billion from a revised $40 billion in April, the biggest month-to-month increase in two years.

Newmont up slightly

Newmont's 1.25% convertibles due 2014 traded at 101.875 on Wednesday, according to Trace data, compared to 101 to 101.5 on Tuesday.

Shares of the Denver-based gold mining concern closed down again. This time by 15 cents, or 0.5%, at $29.02, which was on top of a $1.01, or 3.4%, dip on Tuesday.

The Newmont As trade mostly on an outright basis or on a light 15% delta.

Newmont's 1.625% convertible due 2017, or the B issue, which traded on Tuesday at 107.625, was not seen in trade on Wednesday.

Jefferies analyst Peter Ward, who downgraded the shares of several gold mining companies, including Newmont, said that gold mining stocks are still expensive even though they have been slumping. He views the prices as high because the companies generate little or no cash flow, and their free cash flow could become negative in the next few years. He noted that the price of gold has fallen by more than a third from its record levels in 2011. He lowered his gold price forecast to $1,250 an ounce from $1,500 an ounce, and said it could fall further from that level.

Molson slips 0.125 point

Molson's 2.5% convertibles due July 30 traded at 100.48 on Wednesday, according to Trace data. That was compared to 100.5 bid, 100.75 offered on Tuesday.

It looks to have slipped about 0.125 point on both Tuesday and Wednesday and marked the continuation of a trend that has been ongoing as the optionality has fallen for this issue ahead of its maturity at the end of the month.

The stock was trading around the strike for a while, but it has dropped off from that level, sources noted.

"It's steadily been coming in over the last few weeks," a source said.

Mentioned in this article:

Healthways Inc. Nasdaq: HWAY

Molson Coors Brewing Co. NYSE: TAP

Navistar International Corp. NYSE: NAV

Newmont Mining Corp. NYSE: NEM

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