Convertibles activity muted as Fed meets; Tesla gains on stock upgrade; Liberty Expedia firms

By Stephanie N. Rotondo

Seattle, June 13 – Convertible bond trading was taking a backseat to the Federal Reserve on Tuesday as investors wait to see if the central bank will raise interest rates this month or not.

While there is an overall expectation that rates will in fact go up this month – Reuters said there is a 94% chance of that happening – not everyone was as optimistic.

“Does it matter if it’s now or September?” one trader asked. “It’s meaningless when they do it. Look at today’s chart in five years and you won’t be able to tell the difference.”

“I’m not expecting a hike anytime soon,” another trader said. “I don’t think the current economic growth warrants a hike. Washington is stalled out, so we won’t see a tax cut or housing reform this year.”

Yet another source went along with the market expectation, pointing to general economic data that has been improving, such as employment numbers.

As for the day’s trading, the tech space was generally better on the day. Tech stocks had been beaten up on Friday and Monday but were turning positive once again on Tuesday.

As such, tech-linked convertible bonds were also moving upward.

Tesla Inc. – a name that blurs the line between straight tech and straight auto manufacturer – was one such name. Its convertible bonds added about 3 points on the day after the equity was upgraded to buy from hold at Berenberg.

The firm stated that the company could have “disruptive potential” on the automotive space, given its “near monopolistic” ability to gain market share and outperform rivals.

One sellside source said the 1.25% convertible notes due 2021, as well as the 0.25% convertible notes due 2019, were “just tracking with the stock.”

He placed the former issue in a 117.75 to 118.25 context and the latter bonds around 116.

Another source called the 0.25% convertibles up almost 4 points, also around the 116 mark.

The underlying stock improved $16.94, or 4.72%, to close at $375.95.

Liberty Expedia Holdings Inc.’s $350 million of 1% 30-year exchangeable bonds – which are exchangeable for Expedia Inc. common stock – were also ticking upward, according to a trader.

He saw the issue gain nearly a point to close in a 104 to 104.5 range.

Expedia’s shares pushed up over 1% on the day, finishing at $145.92.

Liberty Expedia priced the Rule 144A offering on Thursday.

BofA Merrill Lynch, J.P. Morgan Securities LLC and UBS Securities LLC ran the books.

Not all names were benefitting from the day’s overall positive tone, however.

A trader said ServiceNow Inc.’s 0% convertible notes due 2022 were quite active, though off barely more than 0.25 point.

He saw the issue around 100.5.

He noted that the stock was barely lower as well. It closed off a dime at $102.22.

“If something moves a quarter of a point, it’s a big deal today,” he lamented.

Mentioned in this article:

Expedia Inc. Nasdaq: EXPE

Liberty Expedia Holdings Inc. Nasdaq: LEXEA

ServiceNow Inc. NYSE: NOW

Tesla Inc. Nasdaq: TSLA

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