Saturday, December 13, 2008

A silver lining

The FT reports on the opportunities for pension funds in the convertible bond market.

Convertible bonds were hurt more than other markets because hedge funds were the main buyers, owning the bonds as a way of arbitraging the value of the implied option to convert them into equity. But as banks cut back their leverage – from 5.5 times a year ago to virtually nothing now – and investors tried to withdraw money, hedge funds became forced sellers. As a result many investors believe that there is an opportunity to make relatively low-risk double-digit returns without needing to use leverage or complex hedging strategies.

Though hedge funds were forced sellers, this opens the way for other funds to cover some of their losses in other markets.

No comments: