Morning Commentary: Tesla’s 1.5% convertible edges up on swap; Newmont trades actively

By Rebecca Melvin

New York, Feb. 11 – Tesla Motors Inc.’s convertibles were in focus early Wednesday as shares of the Palo Alto, Calif.-based electric car maker slipped ahead of its earnings report expected after the market close.

Tesla’s 1.5% convertibles due 2018 were down about 5 points on an outright basis to 175.6 from about 180 to 181 on Tuesday. But on a hedged basis that was up 0.25 point, a New York-based trader said. This issue is a “volatility play on tonight’s earnings,” the trader said.

On Tuesday, Tesla traded actively and was seen higher by about 0.25 point on a swap basis.

Tesla’s 0.25% convertible due 2019, or the A tranche, traded at 89.74 early Wednesday, according to Trace data. That was down outright from about 90.8. And the Tesla 1.25% convertible due 2021, or the B tranche, was mostly quiet but looked to have traded down a point at 87.6 from 88.8 late Tuesday, according to Trace data.

Tesla shares were down $8.53, or 4%, at $207.76.

Also trading early Wednesday were Newmont Mining Corp.’s 1.625% convertibles, which traded at 104 versus an underlying share price of the Denver-based gold and copper mining company of $24.20, a trader said.

The Newmont bond has a yield of negative 0.03%, and investors are willing to hold it despite the 89% premium for fear of deflation, a New York-based trader said.

The risk is, however, that Newmont issues another convertible, the trader said. “I doubt investors would be happy to pay 0%, up 85%.”

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