Morning Commentary: Convertible bonds remains jittery; Chesapeake Energy weakens; Brocade firms

By Stephanie N. Rotondo

Seattle, Nov. 2 – U.S. election woes continued to weigh on the convertible bond market on Wednesday.

“This election has destroyed this market, for like weeks,” a trader said.

In addition to the U.S. general election, which will take place on Nov. 8, the market was also waiting to hear from the Federal Reserve. The central bank is slated to make a policy announcement later in the day, though expectations are that interest rates will stand pat for the time being.

Given the overall soft tone of the space, Chesapeake Energy Corp.’s 5.5% convertible notes due 2026 continued to lose ground.

A trader pegged the issue at 89.625 at mid-morning. That compared to levels around 91.75 at Tuesday’s close.

As for the stock (NYSE: CHK), it was off 12 cents, or 2.15%, at $5.24.

Domestic crude prices were also shrinking, falling over 3% in early trading as the U.S. Energy Information Administration reported a bigger-than-expected increase in inventories.

Brocade Communications Systems Inc.’s 1.375% convertible notes due 2020, however, were bucking the downward trend on reports that Broadcom was buying the business in a deal valued at $5.5 billion.

A trader said the bonds were trading “around 101.” Another market source called that up 1 to 2 points.

“That’s most of the volume on the tape, which isn’t a lot of volume to begin with,” the first trader remarked.

The equity (Nasdaq: BRCD) was similarly better, rising $1.12, or 9.96%, by mid-morning to $12.36.

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