Convertibles improve; China, tech names better on swap; energy quiet despite oil’s gains

By Rebecca Melvin

New York, Aug. 27 – U.S. convertibles saw pricing pick up on Thursday in virtually all names, including those that had been especially beaten down in the last week and a half. A number of China-based credits were better, and semiconductors continued to improve. Energy was also higher, but the sector remained relatively quiet despite a 10% surge in oil prices, market players said.

“It’s stronger across the board,” A New York-based trader said of the convertibles market.

A second sellsider said, “Everything was up out of the gate, and that didn’t change throughout the session.”

Most convertible paper was up 0.375 point to 0.625 point on a dollar-neutral, or hedged, basis, the sources said.

Among China-related convertibles Ctrip.com International Ltd. and Qihoo 360 Technology Co. Ltd. were better, as was SunEdison Inc., a sellsider said.

The technology sector, which has been somewhat resilient this week following last week’s slide, remained better on Thursday. Semiconductor company Nvidia Corp. was better, with the Nvidia 1% convertibles due 2018 trading up about 3 points to 123.5 bid, 124 offered against a stock price that rose 3.8% to $22.63.

But energy was quiet even though crude oil prices surged. West Texas Intermediate crude oil for October delivery jumped $3.87, or 10%, to $42.47 per barrel on Thursday after the contract had slumped into the high $30-per-barrel range on Wednesday.

Brent crude also jumped. It settled up $4.42 a barrel to $47.56, up 10%.

The snapback was touted as the biggest one-day gain in more than half a decade. Cheering markets was economic news that showed the U.S. economy grew faster than estimated in the second quarter, with the U.S. GDP seen expanding at a 3.7% seasonally adjusted annual rate, according to the Commerce Department. Economists had forecast a 3.3% rate.

Also China’s stock markets rebounded, with the Shanghai composite index gaining 5%.

There also may have been short covering as recovering prices took shorts by surprise and the need to buy back positions squeezed prices higher.

There was not a lot of notable trading among energy convertibles, especially compared to the other segments of the convertibles market.

Benchmark energy issue Whiting Petroleum Corp.’s 1.75% convertibles rose to about 80 or 82, which was up from 77 on Tuesday. But shares of the Denver-based oil and gas E&P company spiked 15%.

“Whiting did rise. But it was more active away than here. We traded small, a couple of million with a hedged seller and a buyer,” a New York-based trader said.

Whiting shares closed higher by $2.05, or 14%, to $16.75.

Blanket advance

The convertibles market was up in unison on Thursday as equities rallied, with convert markets going out to would-be buyers by bond profile, and marking a definite change from Wednesday, when equities were also rising but with noticeable hesitation on the part of convert players.

“Everything was up half a spread to a spread,” a sellsider said, referring to an amount that represents about 0.375 point to 0.625 point.

Technology and health care names were being shoveled out the door by profile, the sellsider said.

On Wednesday, the market was seeing two different themes that were confusing. Sellers slowed down, but buyers were not ready to step in. On Thursday however, “it was a blanket valuation day,” the sellsider said.

A second sellsider said nearly the whole market was to buy on Thursday.

“We’re still struggling to find a theme other than risk on, risk off,” the trader said regarding how the markets have been trading for the last week or so.

Ctrip, Qihoo improve

Qihoo’s one-year-old 1.75% convertible bonds due 2021 traded last at 82.2, which was a 2-point rebound from Wednesday. The $517 million issue priced together with a $517 million tranche of 0.5% convertibles due 2020 last August. The 0.5% convertibles were last at 91.25 but didn’t appear to trade on Thursday, according to Trace data.

Qihoo shares rose $3.12, or 6.5%, to $51.29.

Qihoo also has a 2.5% convertible due 2018 that was last at 94.50.

Ctrip.com shares also jumped, rising $5.88, or 9% to $69.96.

Ctrip’s 1.25% convertibles due 2018 rose to 112.5 from 107.75, according to Trace data.

The Chinese stock markets rebounded on Thursday after losing about one-quarter of their value in the last week.

Nvidia ‘moves better’

Nvidia’s 1% convertibles due 2018 were trading higher at 123.5 bid, 124 offered versus an underlying share price of $22.63 at the end of the session.

The bonds were up about 3 points on an outright basis against shares that rose 3.8%.

On a hedged, or swap, basis, the bonds were better by about 0.375 point.

“Semi names continue to move better,” a New York-based trader said.

Mentioned in this article:

Ctrip.com International Ltd. Nasdaq: CTRP

Nvidia Corp. Nasdaq: NVDA

Qihoo 360 Technology Co. Ltd. Nasdaq: QIHU

SunEdison Inc. Nasdaq: SUNE

Whiting Petroleum Corp. NYSE: WLL

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