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Morning Commentary: Tesla in line to slightly lower; Alcatel-Lucent bonds jump on prospective deal
By Rebecca Melvin
New York, April 14 – U.S. convertibles were trading quietly early Tuesday with little by way of catalysts to stimulate flow amid mixed to weaker equities.
“Flow is within the context of Monday’s offers, a New York-based trader said. “People are just kind of trimming, nipping, tucking – nothing very interesting.”
Tesla Motors Inc.’s 1.25% convertible due 2021 was seen crossing the Trace tape at 89, which was flat to slightly lower on a dollar-neutral basis.
Tesla was “in line to a tick weaker,” the trader said, adding that it wouldn’t be more than 0.125 point weaker. On an outright basis, the 1.25% bond was lower by 0.5 point.
Tesla shares were down 1.5% after Morgan Stanley lowered its estimate on Tesla earnings. But the bank kept its “overweight” rating and $280 price target on shares.
The major U.S. indices were fluctuating between narrow gains and losses.
Internationally, deal news put the convertibles of Alcatel-Lucent SA and Nokia Corp. in the spotlight, as Nokia is in advanced talks to buy the rival communications networking company.
Paris-based Alcatel shares were up 9% in early trading. The Alcatel 4.25% euro-denominated convertible due 2018 was seen up 28 points, while the Alcatel 0% convertible bonds due 2019 and 0.125% convertibles due 2020 were seen up 12 points, a New York-based trader said.
Current bond valuations do not reflect 100% probability of a takeover, and hedge funds are buying more bonds as the deal has been perceived as good by the French government, the trader said via e-mail.
Nokia shares were 4% lower. Nokia has a 5% convertible senior bond due 2017.
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