Hedge Fund Arb Trade Surfs $140 Billion Wave of Debt Coming Due

In a niche corner of the bond market, an almost $140 billion wave of maturing debt is poised to lend momentum to what is already one of Wall Street’s hottest hedge fund trades.

About 40% of all dollar-denominated convertible bonds in the world come due by the end of 2026, according to data compiled by Bloomberg, throwing up all manner of opportunity for an arbitrage strategy beloved by fast-money players like AQR Capital Management and Man Group.

The bet is the corporations that issued the debt — notes that can turn into equity if conditions allow — will likely ...