What you see now is a much higher-grade issuer basically looking for cheap funding. It had been paying 4 percent a year on short-term debt. Companies are also looking to save on taxes, which convertibles' complex structures allow. And it's just these structures that make convertibles popular among hedge funds, which are now responsible for much of the buying and trading. Compared to regular corporate bonds, which throw off interest and give investors their principal back when they mature, very.
Many convertibles pay no interest.
Some are convertible when the underlying stock reaches a certain target price. Others are convertible only when the stock trades above that price. Sometimes the target price changes. Sometimes interest payments change. And convertibles and the underlying stocks don't always move in sync.