FT News Briefing Convertible bonds are so hot right now
Jan 4, 2024
This discussion highlights the Federal Reserve's commitment to maintaining high interest rates for an extended period. It also delves into the surge of convertible bonds, showcasing how they are becoming a go-to fundraising tool for corporations. Recent bomb attacks in Iran that killed over a hundred people add a somber note. Additionally, the troubling trend of violent offenders returning to Russian communities after military service raises questions about justice and societal safety. It's a mix of finance, tragedy, and moral dilemmas.
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Convertible Bonds Benefit Both Borrowers and Investors
- Convertible bonds offer lower interest rates than conventional bonds, making them attractive to companies in a high-interest-rate environment.
- They provide a way for businesses to reduce borrowing costs while giving investors potential upside through equity conversion.
Uber's Use of Convertible Bonds
- Uber issued $1.5 billion in convertible bonds in November at an interest rate of less than 1%.
- This demonstrates the significant cost savings companies can achieve through these bonds compared to traditional debt.
Investor Perspective on Convertible Bonds
- Investors in convertible bonds accept lower yields in exchange for potential equity upside.
- This offers some downside protection if the company's share price doesn't rise as expected.