Yahoo/Altbaba convertibles rise, fall; Red Hat backs off; Starwood a ‘yield-to-maturity’ play

By Stephanie N. Rotondo

Seattle, June 26 – Convertible bond investors were easing their way back in on Monday, resulting in a limited amount of trading, one sellside source reported.

Technology names remained in focus, however.

For instance, Yahoo! Inc.’s 0% convertible notes due 2018 continued to be on the active side. Initially, the notes were seen inching up ½ point or more to a 114 to 114.5 context but they eventually traded down about ½ point to a point, ending the session in a 113 to 114 range.

There was no fresh news out on Yahoo – now Altbaba Inc. since Verizon bought most of the company’s core assets – aside from the announcement of the company’s Dutch auction tender results last week. Altbaba spent about $3.4 billion to repurchase approximately 64.51 million common shares at $53.20 each.

On Monday, Altbaba’s stock was down 42 cents at $54.31.

Meanwhile, Red Hat Inc.’s 0.25% convertible notes due 2019 – which have been climbing higher since the company announced earnings that beat expectations last week – drifted down about a point outright, according to a market source.

The source placed the notes around 141.625.

At another shop, a trader saw the convertibles at 140.3, off over a point as the stock also waned.

“These bonds trade like crazy on 60-cent moves on a $100 stock,” the trader lamented. “It’s insane.”

The underlying equity fell $1.23, or 1.24%, to $98.19.

Away from tech, Starwood Property Trust Inc.’s 3.75% convertibles coming due on Oct. 15 were also being eyed, a trader said.

The trader pegged the paper at 100.5.

“It’s strictly a yield-to-maturity play,” the trader said. At current levels, the yield is about 2%, with parity at 96, he added.

“The upside is there if you are an outright guy,” the trader noted. But given the “fatter coupon,” playing the name on a hedge basis is “impaired.”

Starwood’s stock ticked up a dime on Monday, closing at $22.96.

Mentioned in this article:

Altbaba Inc. Nasdaq: AABA

Red Hat Inc. NYSE: RHT

Starwood Property Trust Inc. NYSE: STWD

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