Convertibles decline on weak jobs report, pare losses by the bell; liquidity constrained

By Stephanie N. Rotondo

Phoenix, Oct. 2 – The convertible bond market was again under pressure on Friday, though there was a slight rebound by the bell.

The space followed the trend of the broader markets, which were down sharply early in the day as a new jobs report came in weaker than expected.

The September jobs report showed the private sector adding just 142,000 jobs during the month, well below the expected addition of 203,000 jobs. Additionally, figures for August and July were downwardly revised.

The news was prompting market players to speculate that the Federal Reserve would push an interest rate increase until early 2016.

But a rally in commodities helped lift the markets higher, thus the convertibles arena also looked to pare its losses.

Liquidity in the convertible market also remained weak, with one market source noting that “nothing” was going on.

Gilead Sciences Inc. was notable for the day, as analysts at Morgan Stanley cut its rating on the stock to equal weight from overweight. The rating change was due to broader industry concerns about high drug prices and the politics surrounding them.

Initially, Gilead was trending lower, both in the converts and in the equity. By the end of the day, however, both securities were seen with a firmer tone.

At mid-morning, the 1.625% convertible notes due 2016 were pegged at 422.375 by one market source. At the close, another source saw the issue at 432.25.

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