Convertible Debt Beats Bonds by Most in Decade

Investors are seeking to profit from the rally in equities by buying convertible bonds, which are deemed safer than stocks should the economy slip back into recession.

“Either bonds are a bubble or stocks are cheap,” said Edward Silverstein, a senior managing director who helps manage $2.7 billion of convertible bonds at MacKay Shields LLC in New York. “You basically have an investor that’s scared.”

Convertible bonds may also protect fixed-income investors from companies taking on debt to boost their share price through stock buybacks or mergers at the expense of credit quality, said Hans Mikkelsen, credit analyst at Bank of America Corp. “If you just buy a corporate bond, you only get the negatives,” Mikkelsen said.