Convertibles better bid after U.S. employment data; Cypress Semiconductor adds on swap

By Rebecca Melvin

New York, July 8 – U.S. convertibles were better bid on Friday after better-than-expected U.S. jobs data pushed both equities and Treasuries higher simultaneously.

“On a relatively, light volume day, things were better to buy, post the jobs numbers,” a New York-based trader said of the convertibles market.

“More balanced convertibles are definitely better. But it’s been mostly small trades,” the trader said, characterizing the day as a “generic, slow-market melt up.”

Cypress Semiconductor Corp.’s 4.5% convertibles due 2022, which priced last month, traded at 107.375, according to Trace data, and were better by about 0.5 point on swap against Cypress shares, which were up 43 cents, or 4%, at $10.53, the trader said.

There was buzz in the name after “an article in the Financial Times, which wasn’t particularly helpful,” sparked interest, the trader said of Cypress.

FireEye Inc.’s two sister convertibles, each $460 million in size, traded on Friday. The FireEye 1.625%, series B, convertibles due 2035 traded at 90.25, which was up 1.5 points on an outright basis on the day, according to Trace data, and the FireEye 1%, series A, convertibles due 2035 traded at 91.75.

Shares of the Milpitas, Calif.-based network security company were up 20 cents, or 1.3%, at $16.20 in the early going. But the FireEye shares extended gains during the session, closing up 42 cents, or 2.6%, to $16.42.

Tesla Motors Inc.’s newer convertibles were up slightly. The Tesla 0.25% convertibles were initially down about 0.125 point at 87.375 but closed higher at 87.75. The Tesla 1.25% convertibles moved up a point to 83.82 at the close, after trading at 83.125 at midsession and at 82.875 on Thursday. Tesla shares recovered from midsession losses to close up 84 cents, or 0.4%, to $216.78.

The Tesla 1.5% convertibles, or the old bonds, a trade that has fallen apart in recent days because of very limited borrow in the underlying shares, were not seen to have traded on Friday. They closed at 171 on Thursday, which was 2.875 points below parity.

On Friday, RBC Capital Markets lowered its earnings estimates and price target on Tesla, citing concerns about production and delivery issues. But RBC maintained a sector-perform rating.

Weatherford International Ltd.’s well-performing exchangeable bond touched 111 in trade on Friday before paring gains to close of 108.725, which was virtually unchanged from Thursday’s outright level. Weatherford shares also pared gains to end lower by a nickel, or 0.9%, at $5.36.

The oil market remained weak on Friday with the price of West Texas intermediate crude oil slipping another couple of cents to $45.12 per barrel for front-month delivery. The contract tumbled 5% on Thursday.

Macquarie initiated coverage on Proofpoint Inc. at outperform and set a $75.00 share price target. That followed on the heels of Evercore ISI assuming coverage of the company with a buy rating on June 29. Proofpoint shares rose $3.37, or 5%, to $68.03. The Proofpoint 1.25% convertibles were indicated up at 176.4 from 170.5, according to a pricing source.

Both stock and bond markets rallied on Friday as stock investors were cheered by the nonfarm payrolls data that supports the thesis of positive economic growth, while bond investors continued to flood the U.S government debt market amid a global market with negative rates elsewhere.

In economic news, the Labor Department reported that the U.S. economy added 287,000 jobs in June, which was much better than the 180,000 jobs economists expected and a strong bounce from May, when only 38,000 jobs, revised down to just 11,000, were added.

The unemployment rate rose to 4.9% from 4.7%, reflecting a jump in the number of people in the labor force.

The rally in equities left the S&P 500 stock index up 32 points, or 1.5%, to 2,129.90, which was less than 2 points shy of its record high set a year ago on May 21, 2015. The Dow Jones industrial average closed up 250.86 points, or up 1.4%, to 18,146.74, and the Nasdaq stock market jumped 79.95 points, or 1.6%, to 4,956.76.

Overall, the convertibles market was about 0.25 point to 0.5 point better on the day, a New York-based trader said, with the impact somewhat sector dependent. Oil and gas and health care continued to be the outperformers, he said.

Convertibles issuance has been quiet, and in an absence of new paper, there was not expected to be a lot of shifting around in the convertible space. “There were mostly small trades, nothing meaningful.” He said.

The tech space was mildly better by about 0.125 point on swap, he said. But Cypress Semiconductor was up about 0.5 point.

Mentioned in this article:

Cypress Semiconductor Corp. NYSE: CY

FireEye Inc. Nasdaq: FEYE

Proofpoint Inc. Nasdaq: PFPT

Tesla Motors Inc. Nasdaq: TSLA

Weatherford International plc NYSE: WFT

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