Lombard Odier Information zu Wandelanleihen:
2008 will be remembered by most investors as an exceptionally turbulent and difficult year. Following exposure to real risks related to subprime mortgages, all the financial markets were dragged down into a recessionary spiral by a profound credit crisis. The international equity markets fell by more than 40% over the year.
Not spared by crisis
Convertible bonds were not spared by this crisis: their benchmark – UBS Global Focus Convertible Bond – fell by more than 25% over the year. After a particularly dynamic 2007 (USD 198 billion, +49%) and a good start to 2008, the primary market for convertible bonds slowed considerably in the 3rd quarter and practically disappeared in the 4th quarter. The year-end saw a flight to quality, with many investors taking refuge in money market funds and government bonds.
In the last three months of 2008, some highly unusual phenomena coincided on the convertible market: forced sales by some players, a low number of buyers, and a highly pessimistic environment. Because of these factors, we witnessed an unprecedented situation, in which a large number of convertible bonds were sold for less than the value of their bond component.
Given the worldwide risk revaluation, a lot of hedge funds had to resort to forced sales. Valuations of convertible bonds were hit by this revaluation and became greatly discounted, often offering higher yields than equivalent standard bonds. Convertible bonds thus offered an opportunity to invest in instruments providing a high yield at short maturities (six months to a year) without being exposed to the risk of poor credit quality.
The return to convertible bonds
The particularly attractive valuation of convertible bonds has been discussed in many analyses and recommendations, and investors started to return to this asset class in December 2008. The valuations of convertible bonds with a higher yield than traditional bonds of comparable quality and a practically free purchase option have increased in the last few weeks. This appreciation was supported during the period under review by the absence of sell flows from alternative management players.
We therefore believe that in 2009 convertible bonds will offer the best yield/risk ratio since they now generate an attractive bond yield as well as the chance to participate in any rise in the equity market, often at a very low price. Funds focused on high-quality corporate convertible bonds should be able to protect their clients´ investments in the coming months, while offering very appealing yields in a period that we expect to be difficult for investors worldwide.