Convertible Bonds: After a Difficult Year, Far More Reasons to Look at the Asset Class

In the current environment of rising interest rates, higher credit spreads and lower equity valuations, could 2023 be a year of recovery for convertible bonds?

While 2022 was a difficult year for convertible bonds, given rising correlations between bonds and equities, we find several attractive opportunities today:

1. The exceptional risk adjusted historical behavior of convertible bonds showing a faster recovery than all other risky assets especially after difficult market phases.
2. Convertible bonds are a risk-adjusted way to play the recovery of “growth” equities which were hurt by the rising interest rates environment
3. Increasing yield and carry of the securities leading the large part of the universe trading below par
4. M&A opportunities in tech and biotech together with a re-opening of the primary markets could both represent further performance drivers.

Groupama Asset Management has 20 years of experience in managing convertible bonds with a dedicated team offering a broad spectrum of solutions in terms of risk/reward, geographical diversification and ESG integration.