Convertibles quiet before holiday weekend; most issues indicated lower as equities slump

By Rebecca Melvin

New York, Sept. 4 – U.S. convertibles were “all quiet” on Friday, a New York-based sellsider said, with trading personnel thinned ahead of the Labor Day holiday and equities taking a tumble. Financial markets will be closed on Monday.

Early Friday, the Labor Department said that non-farm payrolls rose 173,000 in August and that the unemployment rate fell to 5.1% from 5.3% previously.

The report weighed on stocks as the tally missed some estimates, but it was likely strong enough to support raising rates if the Federal Reserve was leaning in that direction when the Federal Open Market Committee meets in two weeks.

Bank of Richmond Federal Reserve president Jeffrey Lacker said the payrolls number didn’t change the picture for monetary policy. Lacker is a voting member of the committee and has been a supporter of raising rates sooner rather than later.

In the early going Tesla Motors Inc.’s 1.25% convertibles due 2021 printed at 93.3, which was down about 1.3 points on the day, according to Trace data. Shares of the Palo Alto, Calif.-based electric car maker were down 1.3% at $242.43 in light volume. The shares ended the session down 1.5%.

Shares of SunEdison Inc. were up again, however, supporting the beaten-down convertibles, which were pummeled last month. Shares of the renewable power company pared early gains, however, under the weight of steep sell-off in the broader markets. Early on though the SunEdison shares were up another 2%, after jumping 11% on Thursday.

SunEdison’s securities rose after comments from chief executive Ahmad Chatila that the company could be cash flow positive as soon as the end of this year. The cash flow will come from renewable energy projects that SunEdison invests in and sells to yield companies.

SanDisk Corp.’s 1.5% convertibles due 2017, which were notably better on swap on Thursday, traded back down a point on an outright basis in tandem with weaker shares.

The bonds of the Milpitas, Calif.-based flash memory chip maker were seen around 124.50. Shares were down $1.28, or 2.4%, at the close at $52.84.

Vipshop Holdings Ltd.’s convertibles sold off sharply as investors eyed the potential for more pain ahead for China, the world’s second largest economy.

Vipshop’s 1.5% convertibles due 2019 crossed the Trace tape last at about 106.3, which was down from 112 on Thursday.

The American Depositary Shares of the Guangzhou, China-based online discount retailer also came off sharply. The common stock closed down $1.34, or 7.5%, to $16.44.

China’s stock markets were closed on Thursday and Friday for a national holiday. But they will be open on Monday when the U.S. markets are closed. Uncertainty regarding how the China markets will act on Monday after a long weekend hiatus was also behind some of the weakness in U.S. markets on Friday, as investors looked to lighten up on risk heading into the long weekend.

This past week, convertibles were influenced by swings in the equities markets but didn’t move in lock-step with that asset class. There were other factors at work in the convertibles space like month-end on Monday and the looming Labor Day weekend.

For the week, equities ended sharply lower after a two-day slide on Monday and Tuesday, improved on Wednesday and Thursday and then resumed their downturn on Friday.

Mentioned in this article:

SanDisk Corp. Nasdaq: SNDK

SunEdison Inc. Nasdaq: SUNE

Tesla Motors Inc. Nasdaq: TSLA

Vipshop Holdings Inc. Nasdaq: VIPS

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