Morning Commentary: Convertible debt trading limited as Fed meets; Ctrip.com, Tesla gain momentum

By Stephanie N. Rotondo

Seattle, June 13 – Convertible bond trading was taking a back seat to the Federal Reserve early Tuesday, as investors wait to see if the central bank will raise interest rates this month or not.

While there is an overall expectation that rates will in fact go up this month – Reuters said there is a 94% chance of that happening – not everyone was as optimistic.

“Does it matter if it’s now or September?” one trader asked. “It’s meaningless when they do it. Look at today’s chart in five years and you won’t be able to tell the difference.”

“I’m not expecting a hike anytime soon,” another trader said. “I don’t think the current economic growth warrants a hike. Washington is stalled out, so we won’t see a tax cut or housing reform this year.”

In early trading, Ctrip.com International Ltd.’s convertibles were edging higher along with the company’s underling equity (Nasdaq: CTRP).

A market source saw the 1.25% convertible notes due 2025 adding almost a point to trade at 109.125.

The stock was meantime up 43 cents at mid-morning, trading at $55.29.

Tesla Inc.’s convertible bonds were also climbing higher, with a trader seeing the 1.25% convertible notes due 2021 and the 0.25% convertible notes due 2019 rising about 3 points at mid-morning.

For its part, the company’s stock (Nasdaq: TSLA) was up over 3% in early trading.

The gains came after the equity was upgraded to buy from hold at Berenberg on Tuesday, with the firm stating that the company could have “disruptive potential” on the automotive space, given its “near monopolistic” ability to gain market share and outperform rivals.

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