Convertible bonds and volatility go hand in hand given the optionality embedded in a convertible security. At times convertibles act more like stocks and at other times more like bonds. This paper explores that concept and the thesis that higher volatility as expressed by the VIX(1) has historically been a positive for convertible bond performance relative to the S&P 500 Index and a 60% equity/40% fixed income mix(2).

A high yield bond investor earns positive returns in three ways — clipping a coupon or current yield, an increase in value of the bond as holders enjoy the fruits of improved credit worthiness of an investment, or a fall in the general level of market interest rates.

Convertible bonds are sometimes considered the “Swiss Army knife” of financial products because they can provide investors with principal protection (barring default), income, and equity-like returns.

An informative historical review of bull and bear markets leading up to the present state of our global economy. Bull and bear stock markets have been around since the beginning of stock indices in 1896. Currently, we are in the longest…