Market eyes Fed decision to leave rate unchanged; Extra Space at par; Alpha Natural down

By Rebecca Melvin

New York, Sept. 17 – A long-awaited lift off of interest rates didn’t occur on Thursday even though Federal Reserve chairwoman Janet Yellen said following the central bank’s statement that the U.S. economy was probably strong enough to merit an increase. Only uncertainty internationally, namely in China and other emerging markets, kept policy makers from pulling the trigger.

In addition, the inflation rate is still running below the Fed’s 2% target for taking away policy accommodation even though labor market data continues to suggest health, Yellen said at a press conference.

In the convertibles market, there was some secondary market buying after the Fed news, likely related to pent-up demand since investors had avoided making significant trades ahead of the Fed announcement. But a move up in equities faded by the close, with equities ending narrowly mixed, and the same could be said of convertibles.

“There was a little buying, but equities sold off,” a Connecticut-based sellsider said.

U.S. convertibles market players also hoped that the decision wouldn’t douse the new issue market.

“I think we had issuance ahead of this decision after a long cold period. I’m hoping this non-move doesn’t send convert issuance back into the freezer,” a New York-based convertibles trader said.

Early Thursday, convertibles were quiet as market players awaited the closely watched Federal Reserve meeting’s result expected at 2 p.m. ET.

“It’s really been quiet ahead of the Fed,” a New York-based trader said.

Extra Space Storage Inc.’s 3.125% exchangeable, which debuted in the market on Wednesday, remained right around par. It was quoted at par to 100.25 with the common stock around $74.40, the trader said. “They are holding in around par.”

The new paper traded actively Wednesday after Salt Lake City-based real estate investment trust priced $500 million of the 20-year senior notes at the cheap end of talked terms.

Elsewhere, Alpha Natural Resources Inc. saw its 3.25% paper bounce around at very low levels on Thursday after the bankrupt coal producer’s credit default swap auction on Wednesday, a trader said.

“ANR was active toward the end of the day. They had their CDS auction yesterday, and it was down but popping back up,” he said.

The Alpha Natural 3.25% convertibles was seen trading between 6 and 10.5.

Equity markets opened lower ahead of the Fed decision and traded narrowly mixed. At late morning, the S&P 500 stock index was positive by 0.23 point at 1,995.56. The Dow Jones industrial average was negative by just a couple of points and the Nasdaq Stock index was up by 10 points, or 0.2%.

In early data, the number of new filings for jobless claims was down, hitting an eight-week low. Initial claims dropped to 264,000 last week from 275,000 – positive news for the labor market.

Soon after the Fed decision, U.S. stocks and bond prices rose. The Dow rose about 160 points, or 1%, and the Nasdaq was up 1.4%. But then gains were erased again, leaving the Dow down 64.87 points, or 0.4%, at 16,675.08 at the close.

The Fed said, “Information received since the Federal Open Market Committee met in July suggests that economic activity is expanding at a moderate pace. Household spending and business fixed investment have been increasing moderately, and the housing sector has improved further; however, net imports have been soft.”

The committee reaffirmed its view that the current 0% to 0.25% target rate for the Federal Funds rate remains appropriate, according to the statement.

Mentioned in this article:

Alpha Natural Resources Inc. Pink sheets: ANRZQ

Extra Space Storage Inc. NYSE: EXT

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