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).
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Market Insights
High Yield – High Risk, Low Return
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.