1. Newsroom
  2. Convertible bonds: quality and potential
Menu
Analysen 10.02.2016

Convertible bonds: quality and potential

Convertible bonds: quality and potential

In 2015, global convertible bond issuance totaled USD 82 billion, a very decent level, although slightly down in comparison to 2014 and 2013.


Overall, the past four years have seen a supportive dynamism in the primary activity across the major convertible bond markets, with repeated but also first-time issuers adding to the global convertible bond supply.

While the volume of the primary issuance is an important element of the renewal of our market, selectivity remains the key pillar. Our philosophy leads us to primarily focus on accessing cheap option characteristics and strong bond-floors. This answers to one key objective: capturing the convex potential of the asset class.

This implies to differentiate between the most expensive convertible bonds – for which the convex potential is considerably limited – and those which, in contrast, display strong drivers of convexity: cheap implied volatility, high credit quality, strong upside potential. Thus, in the latter part of 2015, our preference went to the Brenntag and FCT-Iren new issues, rather than to the latest deals from Vodafone and Total, whose pricing terms at issuance appeared relatively less attractive to us. Similarly, in January, while we found strong value in the Safran 0% 2020 new issue, we did not participate in the Technip 0.875% 2021, which displayed, at issuance, a higher implied volatility level for similar credit quality profile.

In the long run, convertible bonds’ convex potential is what has enabled the asset class to deliver enhanced risk-adjusted returns relative to equities. We were glad to see that this attractive feature was equally evidenced in the shorter term. Over 2015 market ups and downs, the Stoxx Europe 50 NR posted a volatility 3 times higher than European convertible bonds (represented by the Thomson Reuters Europe Convertible Index €-hedged) for an equivalent yearly performance.

Nicolas Delrue
Nicolas Delrue, Head of Investment Specialists

Newsletter

Sign up to receive UBP’s latest news & investment insights directly in your inbox

Click and enter your email address to subscribe

Meistgelesene News

Analysen 26.05.2017

The time is right for convertible bonds

The beginning of a trend

Analysen 05.10.2017

Ausblick 2018

Chancen und Risiken in der Spätphase des Konjunkturzyklus

Analysen 16.10.2017

Emerging-market debt: old prejudices die hard

Although they are often regarded as too risky, hard-currency emerging-market corporate bonds have their attractions, including a very competitive risk/return profile. As economic fundamentals improve, investment flows into this asset class are likely to continue growing.

Auch lesenswert

Analysen 14.08.2018

Oil demand stays firm

WTI oil prices are down almost 10% since the beginning of July. At the beginning of August, oil prices started their longest weekly losing streak in three years. The US/China trade tensions fuelled concerns that global economic growth could slow, weakening worldwide energy demand.
Analysen 07.08.2018

A regime change ahead for global technology

Spotlight - An evolution in return drivers for global technology.

Analysen 30.07.2018

Gelegenheiten bei Aktien nutzen und Risiken bei Anleihen im Auge behalten

Nachdem die Anleger 2017 in den meisten Anlagekategorien Spitzenrenditen erzielt hatten, gingen sie mit grosser Zuversicht ins neue Jahr.