Investors Gobble Up Bonds That Can Turn Into Stocks: WSJ

Smaller companies are feeling good about their prospects. Now, many are rushing to issue low-cost debt that lets investors bet their stocks will climb, Vicky Ge Huang reported for the Wall Street Journal.

This is the highest issuance of convertible bonds since 2021 when near-zero interest rates during the pandemic fueled a boom.

So far this year, US-listed companies have issued $48.6 billion worth of bonds that could convert into stock if their shares rise to a certain price.

That is the highest issuance of convertible bonds since 2021 when near-zero interest rates during the pandemic fueled a boom, according to Dealogic. With shares of smaller companies springing to life in recent weeks, issuance of convertible debt is expected to keep growing.

A surprisingly cool inflation report earlier this month all but convinced investors the Federal Reserve will begin cutting rates in September.

That sparked a rush into shares of beaten-down companies likely to benefit more from lower borrowing costs.

“In the last couple of weeks, small-caps have really been outperforming large-caps. And that has pulled convertible bonds right along with them,” said Michael Miller, chief executive of Wellesley Asset Management, which specializes in convertible-bond investing.