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ANALYSIS
March 2, 2009
Sagging Index no longer reflects what’s going on in the market, some say, Replacements? Google it, to start.
March 2, 2009
Downward price spiral will actually boost the cost of capital for most companies. CFOS, take note.
March 2, 2009
The latest bailout at AIG could be a preview of how the president will deal with Wall Street.
March 2, 2009
No corporate defaults. Big debt offerings. Percolating CP issuance. Things may be looking up in the capital markets.
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November 29, 2007 12:15 PM ET
This summer’s credit crunch brought the ongoing recovery in the U.S. convertible bond market to a halt after the value of U.S. institutions’ convertible portfolios grew to $310 billion in the 12 month ended June 2007, according to a Greenwich Associates study conducted in between May and July and published today. As with most fixed-income products, convertibles faced liquidity challenges over the summer, but Greenwich Associates said it remains to be seen how investors will come out for the year. “Prior to the outbreak of the 2007 credit turmoil, the convertible market had been on a roll since the market trough of 2005,” said Greenwich Associates consultant John Feng in a news release. “Investor holdings were up sharply, and new issue volume was very strong.” The strength in the market in the second half of 2006 and the first half of 2007 was due mainly to the return of hedge funds to the space. Hedge funds left the convertible market about two years ago, but as of the middle of 2007, they represented about three-quarters of the universe of large convertible bond investors, according to Greenwich. Although they came back in force, they modified their strategies, integrating convertible arbitrage within their multi-strategy funds and approaches, while they had previously dedicated entire funds to convertible arbitrage. The growing number of hedge funds returning to convertible arbitrage and the increasing amounts of leverage deployed by hedge fund investors helped fuel the rebound in the convertible market. But while more hedge funds were investing in convertibles, they were also slowly reducing their exposure as summer approached. The typical hedge fund convertible bond investor had about half of its assets invested in convertibles in 2005, but that share sank to 46% last year and to 41% by early summer 2007. In Europe, investors took an even more risk-adverse stance than in the U.S. in the months leading to the summer credit meltdown and increased their short positions on convertibles along with cutting back on their use of leverage. However, they also cut back on the proportion of their holdings covered by protections such as credit default swaps.
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