Great blog post from Matt Levine at Bloomberg The first part is about Exxon and Hess. Scroll down to the section titled "Avid oopsie." This is a gift link. A Bloomberg subscription is not required. The link expires in seven days. https://tinyurl.com/BBMLevine240307
My impression is that convertible bonds only exist for companies to raise cash in accounting efficient ways by allowing hedge funds arbitrarge the the capital structure. That is theres no natural buyers of convertible bonds
I think in some cases, there may be some opportunities, even for retail traders, once the bonds have been trading for a while. They have an embedded call option. And some may be attractive as a long-term buy-and-hold investment. But I haven't found one that I really like yet LOL
Just ask piezoe. He knows everything about debt. He knows it so well, he is convinced that it does not exist. You'd have to ask him for those details, however.
I think the arb is at issuance and then is gone when the hedge funds resell it or just monetize the option. fun fact. In 2008, the world was in crisis and hedge funds were dumping these bonds. The bonds were implying negative implied volatility!
Many convertible bonds pay a fixed rate of interest, or a variable rate (e.g., some treasury benchmark plus a certain amount). The yield on an individual bond is going to be more stable and consistent than any ETF.
Buffet bought 5 billion Goldman convertible back in the GFC, I think it is unsecured notes just above shareholders.
it made him one of the largest shareholders of Goldman and the virtue of his name attached to the transaction made the calls immediately in the money.
Just about every major HF and FO that runs a trading business has a convert arb. operation. In this town, both of the big HFs employ a ton of folks in the convert arb operation. Talented convert folks are golden. If you don't fully understand them, it's probably too late to learn. There is even a convert fund family here.