Convertible trading volume light; Transocean off; Medtronic flat; Avis, AMR under pressure

By Rebecca Melvin

New York, June 25 -The convertible bond market saw some weaker pricing Friday among the prints that went up, but volume was so thin that little significance was attached to the moves.

"There's no volume, so there's no trend. You can't draw any conclusions from it," a New York-based sellside analyst said of Friday's market.

The market saw light volume for much of the past week as slow summer trading took hold and equities languished.

Thursday brought some selling in convertibles, but pricing was in line with underlying shares, not lower. On Friday, there was some short covering, with the stocks of some convertible names moving up more than the overall averages, a New York-based trader pointed out.

Still, energy accounted for most of the trading that did occur Friday.

Transocean Ltd. convertibles were lower Friday as the common shares of the oil-services company tried to hold on to the $50 level.

Medtronic Inc. was a high-volume name, as is typically the case. But Medtronic volume was only about $20 million of bonds, compared to the $33 million of bonds of the 30-day average. In addition, Medtronic pricing was unchanged.

Avis Budget Group Inc. convertibles were lower, as was AMR Corp. and Cemex SAB de CV.

Secondary mixed

Overall, markets were mixed as investors seemed to be digesting the financial regulation reform bill, for which the House and Senate reached a deal on Friday.

There was some relief that the regulation bill, which does provide for derivative trading to be regulated, didn't include the harshest provisions related to derivatives that were discussed.

"From what I understand a lot of the day was taken up listening to dealer conference calls and generally trying to digest the financial reform bill," a New York-based trader said.

Financial regulation wasn't seen as a credit issue so much as an equity one, since it is expected to affect the earnings of financial companies rather than the credit.

Nevertheless, the uncertainty related to the bill caused an overhang, and traders were watching for the end game, which was a long time in coming.

For the week, markets are off given that the latest batch of economic data was less than rosy and raised concerns about economic recovery, and the Federal Open Market Committee stood pat on its key Federal Funds interest rate Wednesday, leaving it unchanged at 0% to 0.25%, noting that "financial conditions have become less supportive of economic growth."

On Friday, the government's report on gross domestic product showed that the broadest measure of the economy had grown at a weaker-than-expected pace during the first quarter. GDP rose at a 2.7% annual pace for the quarter and not at the 3% rate predicted.

Looking ahead, the G-20 meeting getting underway in Toronto wasn't expected to bring any major market moving headlines, but the general tone of the meeting will be gauged, an analyst said.

Transocean slips again

Transocean's 1.625% A convertibles due 2037 traded at 97 and a bit lower at 96.875, while the Transocean 1.5% B convertibles traded down to 89.5 from 90. Transocean's 1.5% C convertibles due 2037 traded at 83.75.

"RIG is coming in," a trader said of the convertibles Friday.

Shares of the Vernier, Switzerland-based deepwater oil-services company ended the day flat, or up 2 cents, at $49.77.

The news impacting the company's securities related to expectations on liability exposure issues related to the Gulf oil leak and whether the moratorium on deepwater drilling will hold up and for how long.

U.S. district judge Martin Feldman in New Orleans rejected the Obama administration's request for a stay from enforcing a six-month moratorium on deepwater oil drilling.

In straight, high-yield debt, Anadarko Petroleum, a player in the spill, was accounting for 33% of total market volume by late afternoon.

Given the questions surrounding the oil leak and leak liability, energy and these names in particular like Anadarko and Transocean, and including others like BP plc, Cameron International, and Hornbeck lower Offshore Services will continue to dominate trade.

Market breadth won't widen out until some of these issues are resolved, a New York-based sellside analyst said.

The other issue looming large for the credit markets is the European sovereign debt issue, and specifically, market participants are watching the bank stress tests there for more clarity on what's involved in those tests and whether they will involve more than just the top 25 banks, the analyst said.

Avis shifts lower

Avis' 3.5% convertibles due 2014 traded Friday at 94.75 versus a share price of $10.75. That compared to 95.5 versus a share price of $11.00 on Thursday.

Shares of the Parsippany, N.J.-based rental car company gained 42 cents, or 3.9%, in heavier-than-average volume, to settle up at $11.19.

One source said short covering was possibly a factor in some of the convert names that saw their stocks outperform the general market.

"It could just be limited buying interest in an illiquid market, but the names that I follow that were up the most included a lot with relatively large short positions," a New York-based sellside trader said.

"Volume was so light today that all the moves are likely exaggerated," the trader also said.

AMR loses ground

AMR's 6.25% convertibles due 2014 traded at 103 versus a share price of $7.65 on Friday, compared to 104.5 versus a share price of $7.75 on Thursday.

Shares of the Fort Worth, Texas-based air carrier shed 30 cents, or $3.9%, to settle at $7.33 on volume that was slightly below the average volume.

The airline industry is a cyclical industry that moves on economic numbers like the GDP number that was released Friday, an analyst said, in response to why the name was under pressure.

Mentioned in this article:

AMR Corp. NYSE: AMR

Avis Budget Group Inc. NYSE: CAR

Medtronic Inc. NYSE: MDT

Transocean Ltd. NYSE: RIG

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