Many people love convertible cars.
They offer the driver safety and convenience close to those of a sedan coupled with the adventure and excitement of being close to the outdoors. In a similar fashion convertible bonds offer the investor the safety of a fixed income instrument coupled with participation in the upside of the equity markets. However, just as special care must be taken when driving convertible cars, special techniques must be used when managing investments in convertible bonds. Usually, but not always, these underlying shares are issued by the same entity that issued the convertible. On the other hand, when the stock tumbles, the convertible becomes equivalent to a normal bond and its price will not decline too much.