There is a time for everything. For investors who have convertible bond obligations in their portfolios, the recent period of plunging stock prices is not an especially good one. Banks are the main issuers of these financial products. Investors are still not selling shares given current market conditions.
If investors were to do so tomorrow, they would realize losses of around 50% on invested capital. Bad business for the investor, who with the same amount that went to purchasing these exchangeable bonds would be able to buy more shares outside the confines of the deal, given that the deal prices that were agreed upon ahead of time exceed the current market price.
Lesson learned: convertibles earn high yields when the stock market is booming. If it is not, they become a hazard.
