Changing with the weather

The current market uncertainty provides an ideal environment for investing in convertible bonds as investors seek security of returns

Global convertible bond issuance hit an all-time high in 2007, reaching around $183bn, an increase of 47% on 2006. And this trend looks set to continue in 2008 - in fact, January saw the largest convertible deal ever, with Citigroup issuing $12.5bn in convertible preferred stock to shore up capital following sub-prime mortgage-related losses. The surge in issuance has been fuelled by equity market volatility. But why does issuance peak when markets are volatile? And why does this present an opportunity for investors? From the point of view of the issuer, the current market climate makes...