Market hopeful of more new paper on improved sentiment

By Ronda Fears

Nashville, Tenn., Aug. 22 - Surging stocks and rallying bonds continued to prop up the moods of convertible players, but trading was not overly active as a good deal of hedge guys were busy short-covering stocks.

"A lot of issues are firming up with the market rally," said Matt Hempel, convertible analyst at Bear Stearns & Co.

Moreover, the market is becoming more hopeful about the forward calendar as buzz circulated that a new deal would be launched Friday for next week's1 slate. One source suggested the new name would be from the retail sector, but most had no real inkling about any details.

"It's all pure speculation, but we're hearing something gets launched tomorrow for next week," said a convertible trader at a hedge fund in New York.

"Stocks are up and the tone is mostly positive. I think some pressure on the credit side has been lifted, somewhat. I'm not saying there aren't a lot of landmines out there, we're still very careful about that side of every story. But in general spreads are coming in and that makes us feel better."

The two new deals of this week were great, the trader said, but will not begin to quench the market's appetite after a three-week hiatus in the primary market.

Traders said activity in deals from CenturyTel Inc. and Harris Corp. was already beginning to peter out, due to both being so small.

"These small deals tend to not trade a whole lot outside of the first week," said the head convertible trader at a major investment bank.

Harris' 3.5% due 2022 added 2.5 points to 106 bid, 106.5 asked with the underlying stock edging up 2c to $34.12.

CenturyTel's new 4.75% due 2032 gained 1 point to 106.5 bid, 107.5 asked as the share ended up 39c to $28.18. The 6.875% mandatory, which sold in April at par of 25, closed up 0.28 to 24.58.

"The interesting thing today was that telecoms and telecom equipment names are still so active. There was not an overwhelming amount of activity, by any means, but it was decent," the head trader said.

"There was a lot of rumors flying around, about consolidation in the sector and speculation as to who might buy who else. That fueled a lot of trading, positioning."

Lucent Technologies, Nortel Networks, Nextel Communications, Corning, AT&T and Ciena were some of the more prominent names in that group. RF Micro Devices also was seen moving.

Lucent was one of the most active names, with both mandatories up sharply.

The newest 7.75% due 2017 gained 2.625 points to 44.375 bid, 45 asked. The 8% due 2031 rose 1.625 to 40.375 bid, 40.875 asked.

Lucent shares closed up 11c to $1.58.

RF Micro Devices dropped early in the day on rumors that it had lost a contract with Nokia, but it recouped nearly everything by the close. The company said the buzz was not true, and affirmed its outlook for sequential revenue growth of 5% to10% in the current quarter.

The RF Micro Devices 3.75% due 2005 was quoted off 0.5 point to 78.25 bid, 79.25 asked with the stock ending down 43c to $8.27.

Oil drillers were another area getting unusual attention, traders said, due to rising oil prices in anticipation of supply shortages that could be compounded by a U.S. attack on Iraq.

Pride International's 2.5% due 2007 climbed 5 points to 107 bid, 107.5 asked with the stock closing up $1.02 to $14.02.

Weatherford International's 0% due 2020 gained 1.125 points to 65.375 bid, 65.625 as the stock ended up $1.67 to $44.15.

In addition to the oil drillers, there were a couple of energy names getting bids.

AES Corp.'s 4.5% due 2005 was quoted up 1.5 points to 51.5 bid, 53.5 asked. The stock closed up 74c to $3.15.

Calpine Corp.'s 4% due 2006 was quoted up 5 points to 54.5 bid, 55.5 asked. The stock ended up 36c to $4.70.

Williams Cos.'s 9% mandatory was up 0.34 to 8.44. The stock closed up 16c to $3.77.

"Some of the energy buying was just bargain-hunting," a dealer said.

Activity in techs was sporadic and erratic, traders said.

"There are very few names in the bone fide tech group that commands attention, at least on the convertible," a dealer said.

"Valuations are still out of whack and people are not comfortable with the [tech] credits."

Computer Associates was one moving up, with the 5% due 2007 gaining 4.75 points to 86 bid, 86.5 asked as the stock rose $1.28 to $12.61.

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