The brave new world of convertible bonds

摘要

Q Does investing in a convertible mean you don't really have the conviction to go with either an equity or a bond and somehow you want to hedge your bets and have a mixture of both? A That's right, a convertible bond is a hybrid instrument, a corporate bond with an embedded equity option. As a bond you have access to coupons, but you can also gain equity exposure. Q Are convertibles just as much about reducing risk as they are about searching for returns? A Many studies demonstrate that, over the long run, convertible bonds generate returns similar to other risky assets, such as equity for instance, but with lower volatility, so they do reduce risk. They contain an additional source of income compared to corporate bonds. But in case of high volatility, they offer protection.