What Drives the Convertible Bond Market?
6 July 2022
The global convertible bond market, which languished in the doldrums since the great financial crisis of 2008/2009, has staged something of a comeback over the past 18 months or so. This whitepaper provides an overview of the exigencies of this instrument, the reasons for its resurgence and whether the trend will continue in light of the current inflationary environment.
The convertible bond is one of the more venerable instruments still in use in the global capital markets. The structure gave buyers the opportunity to participate in upside equity appreciation while offering a defensive fixed income return should shares fail to rally.
The basic structure is fairly straightforward and, in this respect, convertibles are largely unchanged. They pay buyers below-market fixed income returns while the attached warrants can be exchanged for equity at the holder’s option. They thus combine features of both equity and fixed income securities, and are often termed hybrid securities.
Convertibles incorporate a conversion price, which means the price at which the bond can be converted into stock. The conversion ratio refers to the number of shares that can be owned by the conversion of one bond. If the conversion ratio is 10:1, the one bond can be converted into 10 shares. The conversion ratio multiplied by the conversion price equals the bond’s face value.
To access the full whitepaper, please visit: https://www.quantifisolutions.com/what-drives-the-convertible-bond-market-whitepaper/