Convertible bond arbitrage looks set to revive as volatility creates opportunities

Ugly duckling beginning to be attractive


Having fallen dramatically from grace in 2008, convertible bond arbitrage looks primed to make a comeback as securities cheapen and a change in the investor structure of the asset class creates more dislocations in prices.

Convertible bonds can be converted into equity at a pre-determined date and price that usually constitutes a discount to the market value. When a convertible bond is deep in-the-money (the underlying equity is trading well above the conversion rate), convertibles tend to

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