Convertibles sink; Cobalt, energy names slide; Alcoa preferreds hold in light volume

By Rebecca Melvin

New York, Oct. 9 – Convertibles were lower across the board on Thursday, with the energy sector one of the hardest hit areas as crude oil prices continued to tumble.

The amount of decline among convertible issues was dependent on “the risk, but energy names were taking the majority of the pain,” a New York-based trader said.

“With oil and natural gas selling off, that’s been the focus, and their stocks have been cratering relative to other sectors,” he said.

Coal names including Alpha Natural Resources Inc. and Peabody Energy Corp., fell in active trade.

Cobalt International Energy Inc. and Chesapeake Energy Corp. remained active, and Energy XXI (Bermuda) Ltd.’s 3% convertibles due Dec. 15, 2018, which tumbled 4.5 points to 5 points on Wednesday, were weaker again, a trader said.

The session started out quiet, with market players watching equities begin to sell off again following two days of whipsaw action, including Wednesday’s rally.

“No one is doing much of anything; everyone is feeling pretty whipsawed,” a New York-based trader said of market action early Thursday.

But “things got bad pretty quickly,” a second trader said, with sellers stepping in.

Given liquidity issues, convertibles didn’t have the opportunity to recover late Wednesday between routs as equities did, the trader said.

Alcoa Inc.’s 5.375% mandatory convertible preferreds were down a little in light volume but outperformed shares after the New York-based aluminum producer reported strong quarterly results.

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