Amgen, Gilead improve on hedge; D.R. Horton, Synnex trade mostly in line; Cheniere slips

By Rebecca Melvin

New York, Jan. 18 - Convertible bonds continued to trade mostly higher to in line with better stocks on Wednesday. Action was dominated by a few larger, higher quality names like Amgen Inc. and Intel Corp., which were up a point or two in tandem with similar moves in those underlying equities.

In addition to Amgen, which was up again with higher shares to the 103 bid, to 103.5 offered level, fellow biopharmaceutical company Gilead Sciences Inc. added 0.25 point on a dollar-neutral basis.

"It seems like they got pushed up along with the rest of the market," a New York-based sellsider said of the biopharmaceuticals.

Elsewhere, home builder D.R. Horton Inc. was higher in line with the underlying equity, boosted by better sentiment data in the home building segment. Fellow home builder Lennar Corp. also had bids.

The National Association of Home Builders said that its sentiment gauge among home builders rose 4 points to 25 in January, the fourth straight rise and the highest reading since June 2007. The level is still well below 50, which is considered breakeven.

Another piece of paper, priced by Synnex Corp. in 2008, was also in trade and called in line with the underlying shares of the Fremont, Calif.-based business process services company. The Synnex 4% convertibles due 2018 traded north of 129.

But Cheniere Energy Inc. was lagging on a hedged basis, although higher outright. The bonds aren't equity sensitive and therefore are not expected to follow the shares higher, and the shares were up 11% on Wednesday.

Pretty much everything in the convertible space was being bid up and volume was decent, sources said, although things seemed quiet because so much of the volume was concentrated in a few large names.

Amgen, Gilead higher

Amgen's 0.375% convertibles due 2013 traded up to 103 bid, 103.5 offered, which was a point or two higher than Tuesday on an outright basis and higher by 0.375 point to 0.5 point on a hedged basis.

The underlying shares of the Thousand Oaks, Calif.-based biotechnology moved up $1.15, or 1.7%, to $69.22 on Wednesday.

The Amgen convertible has shifted to a volatility trade, or play, at this level compared to how it was previously traded as a cash surrogate, a New York-based trader said.

Despite the fact that the Amgen paper has moved up significantly in the last few weeks, now is not the time to sell given that the paper is still considered cheap, the trader said.

"We're not seeing any selling. There's no reason to sell; there's more reason to buy," he said.

The Gilead 1% convertibles due 2014, or the C convertibles, added about 0.25 point on a hedged basis, trading higher by 0.75 point outright to 118.

The C paper, which is deemed the cheapest of several Gilead convertibles, was the issue in active trade on Wednesday.

Shares of the Foster City, Calif.-based company added $1.25, or 2.7%, to $47.51.

Gilead has always been a volatility trade and continues to be a vol. trade, the trader said.

D.R. Horton higher in line

D.R. Horton's 2% convertibles due 2014 traded at about 125 versus a share price of $14.25 on Wednesday, compared to 123.25 versus an underlying share price of $13.75 on Tuesday, according to a New York-based trader.

The paper was trading on about a 65% delta with shares of the Fort Worth, Texas-based company higher by 39 cents, or nearly 3%, at $14.14 on Wednesday.

On Friday, D.R. Horton traded at 126 versus an underlying share price of $14.24 on a 70% delta.

Housing bonds aren't everyone's cup of tea, and one trader said he leaves them for the big banks to trade.

Wednesday's good sentiment data follows several months of gains in single-family housing starts and sales. But while it's another sign of gradual but steady improvement, it's not an all-clear signal, and comments from the head of the National Association of Home Builders included a warning to politicians not to do anything to derail the nascent recovery.

In the latest data, all three components of the builders' index increased. Builders' assessment of traffic from potential buyers and current sales conditions both hit their highest level since June 2007. Their expectations for sales over the next six months rose to the highest point since September 2009.

The January index, based on a survey of 466 builders, rose in all four U.S. regions, with the Northeast posting a 9-point gain to 23 in January from 14 in December. The West had a 5-point increase, and the South and Midwest had 2- and 1-point increases.

Cheniere slips on hedge

Cheniere's 2.25% convertible due 2012 - which matures in August - traded between 95.5 and 96.375. It was higher on a dollar basis but down about 0.25 point to 0.5 point on a hedged basis.

Shares of the Houston-based liquefied natural gas terminal company surged $1.03, or 11%, to $10.64 on Wednesday.

Regardless of what the shares do, however, this bond is trading right now on the potential for refinancing.

Investors are looking at whether there's "a refinance of the bonds or not," a trader said.

Stock investors were likely cheered by Credit Suisse's initiation to "outperform" for the natural gas company.

Mentioned in this article:

Amgen Inc. Nasdaq: AMGN

Cheniere Energy Inc. NYSE: LNG

D.R. Horton Inc. NYSE: DHI

Gilead Sciences Inc. Nasdaq: GILD

Intel Corp. Nasdaq: INTC

Lennar Corp. NYSE: LEN

Synnex Corp. NYSE: SNX

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