Convertibles weaken amid market turmoil over Greece; Tesla lower; Peabody Energy quiet

By Rebecca Melvin

New York, June 29 – U.S. convertibles were weaker on Monday as risk-off sentiment in the broader markets over the Greek debt situation eclipsed other market factors. But liquidity was very thin, so it was difficult to determine how weak things actually got, market sources said.

Earlier in the session, market traders estimated that convertible paper was lower by about 0.25 point to 0.5 point, in general.

“It’s lower,” a New York-based trader agreed. “But there is not the volume, there’s just no liquidity, so it’s hard to tell how much lower.”

High-yield names were likely to be a little worse off than better credit names, he said.

“No one is trying to transact. I’m sure people would love to sell at Friday’s prices, but there are no bids at Friday’s prices,” he said.

In addition, selling in the broader markets began to accelerate into the market close, making it more difficult to determine where the convertible market stands.

The S&P 500 stock market was down 18 points, or 0.9%, at 2,083 at late morning. But it closed more steeply lower, ending the session near its lows, down 43.85 points, or 2%, to 2,057.64. The Dow Jones industrial average closed down 350.33 points, or nearly 2%, at 17,596.35, and the Nasdaq stock index lost 122.04 points, or 2.4%, at 4,958.47.

Negotiations with Greece’s creditors broke down last week, and late Friday that government called a July 5 national referendum to decide whether to accept or reject conditions for a bailout. A “no” vote could mean the country’s exit from the euro.

U.S. stock markets opened sharply lower following losses in Asia and Europe overnight. Gold and U.S. Treasuries were higher as investors sought safe havens.

The Greek stock market was closed on Monday and will remain shuttered for the week, and Greek banks were also shut. Greek bonds plummeted, pushing the two-year yield more than 12 percentage points higher to 33%.

Greek referendum eyed

Traders said that the convertibles markets were more or less in a holding pattern and suggested it may remain that way for the duration of the holiday-shortened week as the focus will be fixed on next weekend for results of the referendum in Greece.

U.S. financial markets will be closed on Friday in observance of Independence Day.

“It’s all dependent on Greece. We’ve just got to get through quarter end, and probably we won’t hear much before this weekend. It’s wait-and-see what happens, and markets will take their cue from there,” the trader said.

Greece is scheduled to make a €1.55 billion debt payment to the International Monetary Fund on Tuesday. But that deadline was expected to come and go without a payment. The financial markets were rattled on Monday and the default in itself wasn’t expected to create additional angst, a trader said.

“What ends up happening next weekend if they end up leaving the euro – that’s a bigger issue than not paying their debt in time,” a trader said. That’s the real issue, and everyone is waiting to see what happens with that.

“There’s speculation, but there is nothing that anyone can do or say with a lot of real conviction,” a trader said.

Currently “no one is calling a bottom or reducing risk. They can’t: there’s just no liquidity to do any of that,” the trader said.

But once the result of the referendum is in, it will be a lot more serious if they vote against the bailout package measures.

Tesla Motors Inc.’s convertibles were weaker on Monday amid general market pressure and after the company’s unmanned SpaceX rocket, carrying supplies to the International Space Station, exploded shortly after liftoff on Sunday.

Tesla’s 0.25% convertibles due 2019 changed hands at 97.75, which was down 1.5 points from Friday’s last level, according to Trace data.

Tesla’s 1.25% convertibles due 2021 traded last at 95.54, which was down from 98.2 on Friday, according to Trace data.

Tesla’s 1.5% convertibles due 2018 were last at 214.75, which was down from 217.

Tesla shares were down $3.03, or 1%, to $264.06.

But much of the convertibles market was inactive early Monday. Peabody Energy Corp. was quiet after its convertibles dropped sharply on Friday on word of a rating downgrade. Moody’s Investors Service downgraded the company to Ba2 from Ba1, citing high leverage for the St. Louis-based coal company amid an ongoing price decline in metallurgical coal and a drop in oil prices.

The Peabody 4.75% convertibles due 2066 traded last at 15 on Friday, which was down from 18 to 20 on Thursday.

Mentioned in this article:

Peabody Energy Corp. NYSE: BTU

Tesla Motors Inc. Nasdaq: TSLA

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