Hedge fund interest drives Japan convertible bond issuance

Availability of asset swaps key to hedge fund demand for convertible bonds

convertible
Convertibles are proving popular in Japan

The ability to hedge out the credit risk of a convertible bond via an asset swap combined with market volatility in Japan over the past 12 months has led to a significant uptick in hedge fund investment into convertible bonds, say market participants.

Issuance of convertible bonds in Japan stands at $4.5 billion for the year to October, compared with $3.5 billion for the whole of 2012, of which $1.9 billion was in a single convertible issued by Sony, according to data provider Dealogic. The

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