Convertibles trade a little weaker; Tesla ‘holds in’; DISH improves; Alibaba in focus

By Rebecca Melvin

New York, Oct. 31 – U.S. convertibles traded a little weaker on Monday going into month end, but for the month of October overall the convertibles market managed small gains, market sources said.

Election jitters and the fact that third-quarter earnings reports thus far haven’t been that strong have left market players feeling a little skittish, a New York-based trader said regarding Monday’s session. Although there wasn’t that much activity in the market to start the week, he added.

Many of the more balanced convertible names were about 0.125 point to 0.25 point weaker on the day, he said.

Energy names were notably lower with a drop back in crude oil prices. Weatherford International Ltd.’s 5.875% convertible notes due 2021 traded down to about 106.5 from 109.6 last on Friday, according to Trace data. The Houston-based energy company’s common stock fell 35 cents, or 6.8% to $4.82.

Elsewhere, Tesla Motors Inc.’s convertibles were better on Monday, or “holding in,” as one source put it, after weakness on Friday. The better-than-expected Tesla earnings news last Wednesday pushed the Tesla bonds up, but the A tranche outperformed the longer-dated B tranche, he said.

“The As outperformed and the Bs underperformed, so the point-spread between them widened,” the trader said.

DISH Network Corp.’s 3.375% convertible notes due 2026 were trading actively early Monday and were up a bit, recovering from weakness on Friday.

The DISH bond was seen at 114.25, a second New York-based trader said, while the DISH common stock was up 75 cents, or 1.3%, at $58.13.

Earnings news remained front and center of the market as a number of high-profile names are expected to report this week.

Issues tied to large capitalization names such as the Alibaba Group Holding Ltd. mandatory were expected to be the focus of trade, a New York-based trader said.

“Bigger cap names have been the focus,” he said.

The Alibaba mandatory was most recently around 125. The Alibaba American Depositary Shares were at 101.80, which was down fractionally on the day.

Also reporting this week are Ctrip.com International Ltd., Cobalt International Energy Inc., Illumina Inc., Microchip Technology Inc., Herbalife Ltd., and FireEye Inc. later in the week.

The Cobalt convertibles had gained to around 60 but were last back in the mid-40s, a trader noted.

“It’s weaker going into month end, but it’s up small in general for October. It hasn’t been a stellar month,” the trader said.

A second trader said it has been an incremental positive for this quarter. “Equities are not reflecting that as companies have been beating consensus numbers, but these have been reduced for the last six to 12 months,” he said.

“They have been beating lower estimates, so there hasn’t been a huge outperformance,” the trader said.

Tesla bonds steady

Tesla’s 1.5% convertible due 2018 traded at 160.525 on Monday, which was down from 165.9 last.

Tesla’s 0.25% convertibles due 2019 traded last at 92.375 which was off just slightly on an outright basis from 92.5 last.

Tesla’s 1.25% convertibles due 2021 traded at 87.4, which was little changed from Friday.

Tesla shares were down $2.26, or 1.2%, at $197.59.

Last week, Tesla posted a surprise profit for its most recent quarter. The electric car maker earned $22 million, buoyed by record sales of its electric cars as well as lower spending and income from selling pollution tax credits to other auto makers.

Revenue rose to $2.3 billion from $936.8 million in the previous year. As for its car deliveries, they more than doubled, to 24,821 deliveries of its Model S and Model X vehicles.

“Tesla had earnings that were great,” a trader said, noting that the point spread between the A tranche and B tranche spread was 4 points plus.

“Not everyone looks at it that way, but some do,” he said of the spread.

“The As performed as expected, and the credit tightened on that one. But the Bs should have been done better, and some people used as an opportunity to sell,” the trader said.

Mentioned in this article:

Alibaba Group Holding Ltd. Nasdaq: ADR: BABA

Cobalt International Energy Inc. NYSE: CIE

Ctrip.com International Ltd. Nasdaq: CTRP

DISH Network Corp. Nasdaq: DISH

FireEye Inc. Nasdaq: FIRE

Herbalife Ltd. NYSE: HLF

Illumina Inc. Nasdaq: ILMN

Microchip Technology Inc. Nasdaq: MCHP

Tesla Motors Inc. Nasdaq: TSLA

Weatherford International Ltd. NYSE: WFT

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