Convertibles quiet heading into holiday weekend; Teslas improve on strong deliveries

By Rebecca Melvin

New York, July 2 – U.S. convertibles quieted on Thursday after a short flurry of early trades in the secondary market ahead of the long holiday weekend in observance of July 4.

About the only thing of note in the space was action in Tesla Motors Inc., which saw improvement in its trio of convertible bonds on a swap basis after the company reported better car deliveries and shares jumped 4%, a New York-based trader said.

“Otherwise, it was pretty slow today,” he said.

Tesla announced that it delivered 11,507 Model S vehicles for its second quarter, which was up about 52% from the year-earlier period.

Elsewhere, Peabody Energy Corp.’s 4.75% convertibles were trading again and seen at 13 and 14.5, which was lower compared to 14.75 bid, 15 offered on Wednesday.

“There were a couple of trades in BTU,” a trader said.

“I think effectively things got ahead of themselves, and energy-related issues are repricing again. But with oil at $57 per barrel and Brent at $63, it is not a panic type of environment. It’s healthy that valuations are taking a breather,” he said.

Teva Pharmaceutical Industries Ltd.’s 0.25% convertibles were also seen in trade, and they were quoted right around parity. The issue represents a stock proxy for outright investors, a trader said.

Economic data on Thursday was mostly benign. Investors anticipate a positive outcome in the Greece debt situation, and jobs data in the U.S. monthly jobs report for June was mostly in line with expectations, a trader said.

U.S. payrolls added 223,000 jobs in June following a 254,000 increase in May that was less than previously thought, according to the Labor Department. The unemployment rate fell to 5.3%.

Meanwhile, “the Greek situation looks like it is going to be resolved, and so that is one less thing to worry about,” a trader said.

The market was a bit of a roller coaster this past week as fears over Greece contributed to about 0.5 point of weakening on Monday.

A former portfolio manager said, “My suspicion is that credit spreads widened amid a general environment of fear. Greece obviously is insignificant in a global context, although it could be significant to the E.U. and the euro. But any increase in spreads hurts convertible arbitrage and other leveraged strategies.”

“It’s normal for markets to overreact, and the market reactions to Greece have been amplified by the non-stop coverage of Greek events,” the former portfolio manager said.

Teslas improve dollar neutral

Tesla’s 1.25% convertibles due 2021, or the B tranche, traded up to near par at 99.875 and was called 0.25 point better on a dollar-neutral basis.

Tesla’s 0.25% convertibles due 2019 printed above par at 100.5 when shares were around $275.50, which was up 2.6%. The bonds have been lagging below par for some time.

The Tesla 1.5% convertibles due 2018, which are the older, shorter-dated bonds, were also better and printed at 224.61, which was up about 10 points outright, according to Trace data.

The Tesla Bs and the olds were trading most actively, with both the Tesla Bs and As now effectively over par.

“It’s been some time” since the Tesla As and Bs have been back up to par, the trader said.

Tesla announced 11,507 Model S deliveries for the second quarter, the most the company has ever delivered.

The company reminded investors that deliveries is only one measure of its financial performance and should not be relied on as an indicator of its quarterly financial results, which depend on cost of sales, foreign exchange movements and mix of directly leased vehicles.

Mentioned in this article:

Peabody Energy Corp. NYSE: BTU

Tesla Motors Inc. Nasdaq: TSLA

Teva Pharmaceutical Industries Ltd. Nasdaq: TEVA

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