Growing Demand for Convertible Bonds Likely to Survive Rate Cuts

Investment grade-rated companies and those with lower ratings that finally warmed to convertible bonds in 2023 after years of shunning them are set to keep the relationship going, even as investors grow increasingly convinced that central bank rate cuts are just around the corner.

The Federal Reserve is likely to take away some of the attractiveness of issuing convertible bonds, whose equity-like properties allow companies to offer investors smaller coupons than in conventional debt instruments. With borrowing costs for non-convertibles highest in at least a decade, the instruments proved alluring last year to household names like Uber Technologies Inc., ...