Tesla stock, convertible bonds post gains; energy issues in retreat as crude prices tumble

By Stephanie N. Rotondo

Seattle, June 14 – It continued to be the Tesla Inc. show in the convertible bond market on Wednesday.

The name had started to climb up on Tuesday, following an equity upgrade from Berenberg. The firm stated that the company could have “disruptive potential” on the automotive space, given its “near monopolistic” ability to gain market share and outperform rivals.

Come Wednesday, market commentator and portfolio manager Jim Cramer noted that Tesla’s equity was being modeled closer to tech stocks than to automotive stocks. In fact, Cramer likened the name to tech giants such as Amazon and Netflix.

And as Tesla’s shares added another 1.25% – the equity gained nearly 5% on Tuesday – the company’s convertible debt was following suit.

A market source called the 2.375% convertible notes due 2022 up about 1.5 points, trading with a 130 handle. The 0.25% convertible notes due 2019 were meantime about 1.25 points higher at 117.35.

And, the 1.25% convertible notes due 2021 firmed nearly 3 points, trading close to 119.375.

At another desk, the 2.375% convertibles were seen straddling 130, which compared to levels around 128.875 on Tuesday. The 0.25% convertibles were quoted in a 117.5 to 118.5 context, while the 1.25% convertibles were placed either side of 119.

Away from Tesla, liquidity was on the limited side, given that the market remained focused on the Federal Reserve policy meeting. At the conclusion of the two-day event, the Federal Open Market Committee announced that it voted to up interest rates to 1% to 1.25% from 0.75% to 1% previously.

Only one committee member voted against the increase.

The FOMC also unveiled its plan to unwind its $4.5 trillion balance sheet. Under the plan, the Fed will gradually reduce its Treasury bond and agency-backed securities.

Oil names drop

A 3.75% decline in domestic crude oil prices sent oil-linked stocks well into the red on Wednesday.

The weakness in the commodity was attributed to the Energy Information Administration’s weekly inventory report, which showed a 2.1 million increase in stockpiles. With 242.4 million barrels on the books, the inventory is 9% higher than the five-year average.

Notably, demand for the product is down 1.2% in the last four weeks, compared to the same period the year before.

While oil-linked stocks fell, so did the corresponding convertible bonds.

WPX Energy Inc., for instance, saw a 7.77% decline in its equity. In response, its 6.25% mandatory convertible preferreds (NYSE: WPXA) dropped $2.79, or 5.61%, to $46.94.

Trading in the preferreds was well above average for the day.

In Oasis Petroleum Inc. paper, the 2.625% convertible notes due 2023 declined about 6.25 points to around 103.5, a market source reported.

The underlying shares closed down 10.5%.

Rounding out the sector, SM Energy Co.’s 1.5% convertible notes due 2021 waned about 3.5 points to close wrapped around 92.

SM Energy’s stock lost 11.32% of its value during the midweek session.

Mentioned in this article:

Oasis Petroleum Inc. NYSE: OAS

SM Energy Co. NYSE: SM

Tesla Inc. Nasdaq: TSLA

WPX Energy Inc. NYSE: WPX

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