Convertibles weaker in thin trading; energy issues indicated lower; Qihoo edges downward

By Rebecca Melvin

New York, July 6 – U.S. convertibles were slightly weaker in quiet trade on Monday following a long weekend for the July 4 holiday and after Greece’s referendum in which that country voted against accepting creditor demands, or austerity, in exchange for a debt bailout package.

Following the vote, Greek finance minister Yanis Varoufakis resigned.

Stocks fell and bonds rose on Monday in response to the vote, and there was “barely any market at all” in convertibles, a New York-based trader said.

The convertibles market was lower by about 0.25 point across the board from Wednesday, a New York-based trader said later in the session, but there was no significant volume and it was difficult to determine exactly where the market was.

Despite the broader markets’ risk-off character and sharply lower crude oil prices, convertibles were “trendless,” a trader said.

“You’ve got a repeat of Thursday, when there was very muted volume and most swap players were not fully staffed,” the trader said.

He thought activity would gradually improve through the week and anticipated new issuance would materialize by the end of the week.

Overall, levels for various convertible issues followed the previous market a touch lower without names gapping lower. But there were various cross currents at work.

For example, five-year swaps were 7 basis points tighter, an indicator of interest rates, which was helpful, but credit was wider, a trader noted.

The high-yield index was 11 bps wider, he said, and earlier it was even wider.

That environment coupled with light liquidity contributed to a market that was generally not anxious to buy, the trader said.

Among energy names Rex Energy Corp. was lower with its Rex 6% convertible indicated down to 43 from nearly 46. Shares of the State College, Pa.-based independent oil and gas exploration and production company fell 59 cents, or nearly 12%, to $4.4225, retracing nearly all of its June gains.

Greenbrier Cos. Inc.’s 3.5% convertibles dropped to about 123 from 129 with shares of the Lake Oswego, Ore.-based railcar company down $2.36, or nearly 5%, to $46.22.

Qihoo 360 Technology Co. Ltd. was also “a little weaker,” on swap after the China PC and mobile internet security products provider announced that it has hired J.P. Morgan Securities (Asia Pacific) Ltd. as financial adviser to assist in weighing a “going private” proposal received June 17.

The convertibles were a little lower on the back of that news. But Chinese stocks overall were down, and that was also a factor, a New York-based sellsider said.

“All the Chinese stocks are getting crushed,” the sellsider said.

Qihoo’s 2.5% convertibles due 2018 traded at 97.60, which was down about a point on an outright basis from the previous level, when shares were down about 5% at $63.68.

Isis Pharmaceuticals Inc.’s 1% convertible bonds were holding in with shares of the Carlsbad, Calif.-based developer of gene-based therapeutic drugs ending down 70 cents, or 1.3%, at $55.43.

“Isis is holding up,” the trader said.

Overall, “nothing thematic” was occurring; the weakness was across sectors, one trader said.

A second source said “there is not real conviction about what is going to happen.”

Mentioned in this article:

Greenbrier Cos. Ltd. NYSE: GBX

Isis Pharmaceuticals Inc. Nasdaq: ISIS

Qihoo 360 Technology Co. Ltd. Nasdaq: QIHU

Rex Energy Corp. Nasdaq: REXX

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