Asset class no longer acting like bonds following July lows

A trend has developed among convertible bond arbitrage funds recently to shun US holdings in favour of new issues and 'higher quality' bonds from Europe and Asia.

It seems while other markets have recovered, the US convertibles market has been experiencing a simultaneous widening of credit spreads, sliding volatility and a dramatic loss of liquidity. After a difficult year, encouraging signs outside the US, such as tightening spreads and increased volatility, have been revealed.

Dahlia Marteau,