Convertibles mostly quiet; miners improve as gold price jumps; Molina Healthcare adds

By Rebecca Melvin

New York, Jan. 2 - The convertibles market struck a mostly quiet note on the first trading day of the new year Thursday as equities saw profit-taking and U.S. Treasuries and gold prices jumped.

The yield on the 10-year Treasury ended at 2.985%, which was down from an open in the 3.03% context.

A major snow storm poised to slam the Northeast with up to a foot of snow in parts of the region late Thursday also doused market action in what is typically a quiet session for convertibles to begin with. One trader said his firm anticipated trading would begin in earnest on Monday.

Gold prices jumped Thursday with the actively traded February contract for gold adding $22.90, or 2%, to $1.225.20 and giving a boost to mining companies. Newmont Mining Corp.'s B convertibles were mentioned as fairly active in trade, and they improved, as did B2Gold Corp.'s 3.25% convertibles and those of Silver Standard Resources Inc., a New York-based trader said.

"They were all doing better," he said of the mining convertibles. While hedged convertibles players have varying opinions about what will happen next to gold prices following an abysmal 2013, they agree that price dislocations have developed among issues associated with the commodity.

Meanwhile, Molina Healthcare Inc.'s convertible improved outright and on a hedged, or dollar-neutral, basis as shares of the Long Beach, Calif.-based health management organization jumped 4%.

"There is the dynamic of the fiscal year, and people are ready to put money to work. This is one of the issues that has been heavy going into year-end, and people are looking for dislocations," the trader said of Molina.

In economic data, the U.S. Department of Labor said that the number of individuals filing for initial jobless benefits declined by 2,000 last week to a seasonally adjusted 339,000. But analysts had expected U.S. jobless claims to fall by 7,000 to 334,000 from the previous week's revised 341,000 total.

Meanwhile the Institute for Supply Management's PMI business activity index slipped to 57% from the prior month's 57.3%, which was the highest since April 2011. Readings above 50% indicate growth.

Equity indices slipped after ending the year Tuesday at record highs. The S&P 500 stock index shed 16.38 points, or 0.9%, to 1,831.98; the Dow Jones industrial average lost 135.31 points, or 0.8%, to 16,441.35; and the Nasdaq stock market lost 33.50 points, or 0.8%, to 4,143.08.

Mining issues improve

Newmont Mining's 1.625% convertibles due 2017, or the Newmont Bs, were seen near the end of the session at 104.25 bid, 104.75 offered versus an underlying share price of $24.11, a trader said.

Newmont's 1.25% convertibles due 2014 were seen at 99.85 last, which was up from 99.11 last on Tuesday, according to Trace data.

Newmont shares rose 93 cents, or 3%, to $23.96.

B2Gold's 3.25% convertibles due 2018 were a little wider, but a stronger deal, at 92.25 bid, 93 offered versus an underlying share price of $2.13, the trader said.

B2Gold shares gained 12 cents, or nearly 6%, to $2.14.

Silver Standard's 2.875% convertibles were seen at 77.5 bid, 78.5 offered, with the underlying share price at $7.34.

Silver Standard shares gained 50 cents, or 7%, to $7.46.

Gold prices bounced nearly 2% on Thursday after ending 2013 down 28%, which was the worst year since 1981.

The underlying commodity "made people nervous and people made some not so opportunistic trades," a trader said about 2013.

Those un-opportunistic trades could present opportunities in the following year, he said.

Silver for March delivery also gained on Thursday, trading up as much as 5.2% before moving off that level to end up 3.9% at $20.12. Comex silver lost more than 36% in 2013.

Molina adds dollar neutral

Molina's 1.125% convertibles due 2020 were seen at 108 bid, 108.5 offered with the underlying shares at $36.20.

Molina shares ended higher by $1.40, or 4%, to $36.15.

The bonds expanded 0.375 point on a dollar-neutral basis using a 70% delta.

"Health care has been spotty, and Molina has been a little weaker than most of its peers," a trader said.

He said the weakness wasn't related to any fundamentals, and that hedged players have varying opinions on volatility related to the company.

The overall trend going into the end of the year was that people were taking profits and that the primary calendar was strong, while the secondary market was a touch weaker, the trader said.

Long Beach, Calif.-based Molina Healthcare is a health management organization that works with Medicaid patients and other government assistance programs.

Mentioned in this article:

B2Gold Corp. NYSE: BTG

Molina Healthcare Inc. NYSE: MOH

Newmont Mining Corp. NYSE: NEM

Standard Silver Resources Inc. Nasdaq: SSRI

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