Convertible Bonds: Debt That Can’t Decide If It Wants to Be Equity

Convertible bonds are the financial world’s commitment-phobes - bonds that might one day decide to become shares if the mood (or the market) is right. Investors get a steady interest income, but with the tantalising option of converting their bonds into shares if things go well. Companies love them because they get to raise capital cheaply, and investors love them because, well, who doesn’t like having an escape plan?

But, as with all things in finance, the devil is in the detail. Let’s look at what makes convertibles tick.