Why convertible bonds are the asset class for the times

IN THE MIDDLE of March last year, as the coronavirus pandemic was taking hold, a private-equity boss in America was asked how his industry would deal with the shock. The businesses owned by buyout firms would first look to raise debt wherever and however they could. Drawing equity from private-equity investors would be a last resort. “I think you’ll see the same in public markets—a lot of convertible issues,” he said. Sure enough, there was soon a rash of big convertible-bond sales by cruise lines, airlines and retailers.A convertible is a bond with an option to swap for shares of common equity. Last year $159bn-worth were issued worldwide, according to figures compiled by Calamos Investments, an asset manager. This was around twice the value of convertibles issued in 2019. So far this year around $100bn-worth have been issued. An asset class that had fallen out of fashion is back in vogue. That is because convertibles are well-suited to fast-changing conditions.