Zapped by negative gamma in Japan
Shareholder value is a convertible issue
The launch of the first convertible bond to be denominated in euros coincided with Europe's spring fashion shows. Impeccable timing, given that both the currency and the product are definitely en vogue in the capital markets this season. The reason is simple: "If both [equity and debt] markets are doing well you get supercharged returns on convertibles," says Simon McGuire, managing director and global head of equity-linked origination at SBC Warburg Dillon Read.
It's a contrasting outlook to the traditional view of convertibles, summed up by one equity portfolio manager as "dull equity, spicy debt". But over the past six months the global convertibles market has been anything but dull, and not only from the perspective of the conservative fixed-income investor.
The excitement has been a mixture of western thrills and eastern spills. "In Europe, stars have come into line which have created the perfect conditions for the convertible bond market," says Peter Warren, head of convertible bond research at Goldman Sachs. "In Asia, the exact opposite has occurred." But underlying the ferment in both markets is the flexibility and complexity of the product, and the degree to which participants appreciate its possibilities.