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June 2010 | ifr Top 250 Borrowers | 29 CONVERTIBLE BONDS Too much vol


The lack of depth of the convertible bond markets has been shown by the impact of the sovereign crisis in the eurozone. The impact of widening spreads and falling stocks has been hardest felt in Europe, which has gradually closed to new issuance. Even the US market is still facing multi-year volume lows and the outlook is disappointing. Owen Wild reports.


“The US market is super healthy because it benefits from the concerns in Europe. When the market sold off in May many investors were switching out of euro-denominated bonds into US dollar CBs. For many it was a foreign exchange-driven switch, and it has helped support prices in North America.”


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120 100 80 60 40 20 0


or a long period at the end of 2008 and early 2009 there was little to exercise convertible bond originators as the sector gradually shut down across all regions. Asia continued to struggle through 2009, with volumes very low, but the European and US markets showed promise. In Europe a flood of new money and realistic pricing meant both issuers and investors went home happy at the end of the year, while in the US the call-spread overlay structure helped to ensure convertible issuance remained attractive.


For the full year 2009, Asian issuance was a lowly US$13.2bn from 44 deals, according to Thomson Reuters data, while European activity reached US$34.8bn from 71 deals. In the US, activity was almost the same as Europe, with issuance of US$34.4bn, a 10- year low and down from a record high of US$94.6bn in 2007. Overall in 2009, the US convertible universe shrank by US$18.1bn, according to Barclays Capital.


Convertible volumes US$bn


RoW proceeds


Central Asia/Asia-Pacific proceeds EU proceeds US proceeds


For the first five months of 2010, Asian issuance has remained weak totalling US$4.9bn. In EMEA, volume has reached US$10.9bn and for the US issuance is a little higher, at US$12.1bn.


When a solid 12 months of issuance had been achieved in Europe in March 2010, there was still a positive outlook for the market, with a steady stream of issues, though the lack of jumbo deals meant volume was weak even in comparison with 2009. However, with a new bond pricing most weeks, bankers were confident that the convertible bond universe would grow as new issues outweighed bonds maturing. The other benefit for the primary market was the fantastic performance of convertible funds since the secondary market collapsed in late 2008. The convertible bond arbitrage universe of hedge funds suffered in 2008, with just one fund tracked by Credit Suisse/Tremont Hedge Fund index making a positive return for the year.


1 Jan-10 Jun 07


Source: Thomson Reuters


1 Jan-10 Jun 08


1 Jan-10 Jun 09


1 Jan-10 Jun 10


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