Convertible bonds
A convertible bond issued by a public company is one that starts as a bond but that can also be converted into ordinary shares in that company at any time before the bond matures, and at a previously specified price...
A convertible bond issued by a public company is one that starts as a bond but that can also be converted into ordinary shares in that company at any time before the bond matures, and at a previously specified price. In legal and accounting terms, until a convertible bond has been converted, it counts as a loan. Once converted, it is identical to other shares in issue and receives the same dividend. Convertibles usually provide a greater income than shares, but less income than a corporate bond. Holders of convertibles rank above ordinary shareholders in the pecking order in the event of a company going into liquidation. In general they can be seen as a compromise between the safety of bonds and the potential reward of equity. For the company that issues them - especially if it is a start-up - the fact that they tend to pay out a lower rate of interest than ordinary corporate bonds makes them a relatively cheap way to raise finance.
See Tim Bennett's video tutorial: What convertibles reveal about the stock market.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.
MoneyWeek is written by a team of experienced and award-winning journalists, plus expert columnists. As well as daily digital news and features, MoneyWeek also publishes a weekly magazine, covering investing and personal finance. From share tips, pensions, gold to practical investment tips - we provide a round-up to help you make money and keep it.
-
8 of the best riverside properties for sale
The best riverside properties for sale – from a Grade II-listed former mill house with views over the River Chelmer in Essex, to a townhouse on a Georgian terrace overlooking the Avon Gorge in Clifton, Bristol
-
Will “Liberation Day” strike again?
Donald Trump’s 90-day tariff pause comes to an end on 9 July. Can we expect further market turmoil?