Post-holiday session mostly quiet; Tesla drops with shares on delivery concerns

By Rebecca Melvin

New York, July 5 – The convertibles market was mostly quiet in the post-holiday session on Wednesday following Independence Day.

No new issues were heard to have launched or priced in the U.S. market. Trading desks were not fully staffed in morning trading, so it was difficult to match buyers and sellers, sources said.

Traders watched economic and geopolitical headlines as well as the broader markets to gauge market tone. U.S. equities were narrowly mixed, Treasuries edged up for lower yields, and commodities were weaker, but other than crude oil prices, these moves were narrow.

It looks like the Federal Reserve intends to begin unwinding its massive balance sheet, albeit very slowly in September and it may put off a rate hike at that time to do so, according to the Federal Open Market Committee’s June meeting minutes that were released Wednesday afternoon.

The impact of the minutes on stock market and bond markets was not significant and neither was there a large effect from headlines that North Korea has successfully launched its first ballistic missile capable of reaching the continental United States.

The Dow Jones industrial average ended the day virtually flat, or off by 1.1 point to 21,478.17. The S&P 500 stock index was also little changed, up 3.53 points, or 0.15%, at 2,432.54, but the Nasdaq Composite index rose 40.80 points, or 0.7%, to 6,150.86.

In Treasuries, the 10-year note was up 7/32 for a lower yield of 2.322%. But crude oil was sharply lower, although it closed off the lows of the day.

West Texas Intermediate crude for August delivery settled down $1.46, or 3.1%, to $45.61 per barrel on the Nymex.

Tesla drops with stock

Tesla Inc. was the focus of the convertibles market, with the stock coming off 5% to 6% in the early going on the back of disappointing news regarding second-quarter deliveries, a New York-based trader said. Selling in the shares accelerated into the close, leaving the stock down $25.53, or 7.2% to $327.09.

Sales of Tesla’s Model S cars and Model X sport-utility vehicles were a bit lower than analysts expected although significantly higher than last year. The company cited supply issues related to battery packs as putting a crimp in production, but there were also analyst worries about lower demand for these cars.

Meanwhile, the company’s production targets of its Model 3 vehicle, which is supposed to start rolling out this month, have been cut back.

Tesla’s convertible bonds appeared to be trading down in line with the underlying shares, or flat on a hedged basis, a New York-based trader said.

Tesla’s 1.25% convertible due 2021 traded down Wednesday to 110.44, from 115.75 last on Monday. The 110 trades did not occur when the stock was at its lows but down about 5%.

The Tesla 0.25% convertible notes due 2019 dropped to 109.8 from 114.5 on Monday

Electric car maker said it sold about 22,000 Model S and Model X SUVs during the second period ended in June, up about 53% from a year earlier.

For the first half, Tesla delivered 47,100 vehicles, which was just inside its goal of delivering 47,000 to 50,000 vehicles.

Energy weak

The energy sector was also in focus of Wednesday’s session as crude oil prices traded down as much as 5% before recovering some ground for a 3% drop on the day for front month WTI.

Ensco plc’s convertibles were trading a little bit, traders said.

The Ensco 3% exchangeables due 2023 were quoted at 78.25 with the stock down about 5% at $5.21.

That was about in line on a dollar-neutral, or hedged, basis, a trader said.

Oasis Petroleum Inc.’s 2.625% convertibles due 2023 were little changed at about 99.5.

Shares of the Houston-based oil and gas company were down 55 cents, or 6.5% at $7.94.

Shares of Nabors Industries Ltd. fell 86 cents, or 10% to $7.76, but the Nabors 0.75% convertible notes were not heard in trade.

Mentioned in this article:

Ensco plc NYSE: ESV

Nabors Industries Ltd. NYSE: NBR

Oasis Petroleum Inc. NYSE: OAS

Tesla Inc. Nasdaq: TSLA

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