Convertibles market weighed by equities downturn; primary quiet; NXP Semiconductors eyed

By Rebecca Melvin

New York, Oct. 8 – Convertibles were lower on an outright basis in light trade on Tuesday and slipped on a dollar-neutral basis as equities remained under pressure amid worries about global economic slowing and trade tensions, according to market sources.

The S&P 500 and Nasdaq stock indices fell 1.6% and 1.7%, respectively, on Tuesday and the Dow Jones industrial average was off 1.2%, with the U.S. Producer Price Index being the latest data to add to market pressures.

Convertibles turned lower too with valuations coming off slightly, a New York-based market source said.

“It appears like valuations are coming off ever so slightly as opposed to the previous few days expansion in valuation,” the market source said.

The U.S. PPI dropped 0.3% in September, which was the largest decline since January and following a 0.1% gain in August. In the 12 months through September, the PPI increased 1.4%, the smallest gain since November 2016, after rising 1.8% in August.

Excluding food, energy and trade services, producer prices were unchanged last month after jumping 0.4% in August. The core PPI increased 1.7% in the 12 months through September after rising 1.9% in August.

Market observers see this data as giving the Federal Reserve more fuel for another rate cut when the FOMC meets at the end of this month.

The primary market was quiet late Monday and early Tuesday.

“Earnings season is about to start, and all the companies are in blackout – so in converts after the third week of October the calendar should open back up,” a New York-based market source said.

Back in secondary market action, NXP Semiconductors NV’s 1% convertibles, which are going away on Dec. 1, were lower in tandem with a drop in the underlying shares. The bonds were seen down 3 points and change to 105.5, as shares of the Dutch chip maker slipped $3.33, or 3%, to $104.66.

This bond has been trading around in recent sessions as market players eye the upcoming maturity, sources have said.

Among mandatories that were active was Becton Dickinson and Co.’s $2.48 billion of 6.125% convertible preferreds due 2020. The paper was down 1.7% to $60.38, while Becton Dickinson common stock was down $5.10, or 2%, at $244.48.

Energy names were also weak with the convertibles of Chesapeake Energy Corp. and Nabors Industries Ltd. both lower. Chesapeake’s 5.5% convertibles due 2026 were last seen at 55, which was down from 60 earlier in the month. Chesapeake shares were down a nickel, or 3.8%, to $1.28.

“Energy has been super weak and seems to continue to be,” a market source said.

In addition, there was some trading action in ON Semiconductor Corp.

On Monday, convertibles players were switching from one ON Semi convertible to the other, and on Tuesday the issues were still trading some, according to a market source. On Tuesday, shares of ON Semi fell 5% to $17.12.

In addition, Jazz Pharmaceuticals plc’s convertibles were pulled into trade by news that the company has lost its chief financial officer Matthew P. Young to Grail Inc. Young has been appointed chief operating officer and chief financial officer of Grail effective Oct. 28.

Jazz’s 1.875% convertibles due 2021 traded at 99.5. Shares of the biopharmaceutical company based in Ireland fell $7.01, or 5.6%, to $118.58.

Mentioned in this article:

Becton Dickinson and Co. NYSE: BDX

Chesapeake Energy Corp. NYSE: CHK

Jazz Pharmaceuticals plc Nasdaq: JAZZ

Nabors Industries Ltd. NYSE: NBR

ON Semiconductor Corp. Nasdaq: ON

NXP Semiconductors NV Nasdaq: NXPI

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