Convertibles silent: U.S. equity, bond markets shut as Sandy approaches; data delays eyed

By Rebecca Melvin

New York, Oct. 29 - The convertible bond market was essentially closed Monday - along with all U.S. equity markets and an early close for the bond markets - as Hurricane Sandy readied to plow into the northeastern United State, keeping forecasters and officials on edge and reducing Wall Street, and other parts of New York, to a ghost town.

U.S. equity markets will remain closed on Tuesday, and the Securities Industry and Financial Markets Association recommends U.S. bond markets remain closed Tuesday.

"Nothing is going on," a New York-based convertibles trader said early Monday from his Manhattan office.

There were the barest of skeleton crews on some New York trading desks, monitoring news flow and fielding calls from clients, sources said.

"We're seeing that people don't know what to expect, and they are calling and asking things like how to look at dividends that may be postponed," one trader said.

A second New York source said, "No one is coming in, everyone is going to go home at noon." He said his firm had a skeleton crew in the office, watching news flow and not trading anything.

Several firms in areas unaffected by the storm weren't seeing diverted convertibles market activity.

A Chicago-based fixed income trader said that often regionals step up and get a bit more business on light days such as those after Thanksgiving or other holidays, but that wasn't the case on Monday.

"With the equity markets closed, there just isn't anything," he said.

He said that his firm's clients were inquiring whether things would be back up and running on Wednesday.

"There's no reason to get in front of this and buy something that may open 10 basis points wider on Wednesday," he said.

As traders were monitoring the developing situation early Monday, it became evident that the entire week would be impacted by the storm at least in some ways.

There is talk that the October U.S. non-farm payrolls report due out Friday might be delayed, the Chicago trader said.

As of late morning, his firm had had no trades in convertibles and only two in fixed income.

"With a lot of the large equity earnings delays, there was even less of a reason for clients to step into the market," he said.

Earnings, data delays seen

Companies with earnings releases due out Monday that postponed the announcements included Hertz Global Holdings Inc.

The Park Ridge, N.J.-based auto and equipment rental company postponed its third-quarter earnings release until Wednesday after the market close, from Monday, and its earnings conference call until Thursday at 10 a.m. ET.

Convertibles issuer Weingarten Realty Investors postponed its conference call, which had been scheduled for 10 a.m. ET Monday.

The Houston-based shopping mall owner and developer said the earnings release will be rescheduled, but it did not say when.

MannKind Corp. rescheduled its release to Thursday.

Seattle-based biotechnology company Dendreon Corp., widely watched in the convert space, said it rescheduled its third-quarter earnings release and conference call to Friday from the previously planned Tuesday announcement.

The company said that certain members of its senior management team and commercial operations are located in Bridgewater, N.J., where the call was expected to originate.

Radian Group Inc. changed its earnings release to Thursday at 10 a.m. ET from before the market open on Tuesday.

Cincinnati-based Chemed Corp. went ahead and posted earnings Monday afternoon. The provider of hospice care services and Roto Rooter reported higher revenue and adjusted earnings compared to the year-earlier quarter. But earnings missed guidance.

For the full year, Chemed lowered guidance. Its end-of-life care services will see revenue growth, while Roto-Rooter will see a 2% revenue decline.

Among other companies with convertibles that were slated to release earnings was General Cable Corp.

Other data

In addition to the jobs report, there is other data on tap this week.

On Tuesday, the S&P/Case-Shiller home price index results for August are expected to be issued as planned, but the Conference Board is postponing its October consumer confidence report release until Thursday at 10 a.m. ET.

On Wednesday, the employment cost index is expected, and on Thursday, construction spending and the Institute of Supply Management's factory report are on tap.

Issued as planned on Monday was the government's monthly Personal Income and Outlays report for September.

Personal income increased $48.1 billion, or 0.4%, which was what the consensus increase was expected to be over the previous month, and consumer spending, or personal consumption expenditures, increased $87.9 billion, or 0.8%, which was more than the 0.6% increase expected.

Regarding the October non-farm payrolls report due out Friday, which some expect may be delayed, economists were expecting an increase of 120,000 jobs, and not much more than 114,000 created in September.

The unemployment rate is expected to stay steady at 7.8%. Last month due to technicalities in how the rate is configured it fell to 7.8% from 8.1%.

Slight straight bond volume

By late morning, only $500 million of investment-grade and high-yield bonds had changed hands, according to Trace data, a Midwestern fixed income trader said. That compared to normal flow by that point of the day of $10 billion of bonds, he said.

"We have definitely seen clients giving us a shout on orders, but with half to 75% of the counterparties and dealers out, there's no reason to do anything," he said.

He reported one trade of $200,000 of bonds, which compared to about $20 million that the firm typically does by that time of day.

Mentioned in this article:

Chemed Corp. NYSE: CHE

Dendreon Corp. Nasdaq: DNDN

General Cable Corp. NYSE: BGC

Hertz Global Holdings Inc. NYSE: HTZ

MannKind Nasdaq: MNKD

Radian Group Inc. NYSE: RDN

Weingarten Realty Investors NYSE: WRI

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