Expectations of rising interest rates in both Europe and North America will continue to fuel demand for convertible bonds, according to the latest edition of The Cerulli Edge – Europe Edition.
While there are significant variations in local demand for convertibles – with strongest demand seen in Germany, France and Switzerland – there is evidence that institutional demand is starting to catch up in other markets, including the Benelux, Austrial, Liechtenstein, the Nordics, Spain, Italy, Portugal and also the UK, where demand has historically remained soft, Cerulli’s research suggests.
One reason for the variations in demand has been uncertainty among investors as to just where the assets sit amid broader bond, equity or alternative asset allocation. But as certainty builds, it expects this to also contribute to greater allocation to the asset class. And as concerns among investors mount as to when the bull run in bonds will end, convertibles are becoming more attractive because of their lower sensitivity to interest rate changes than standard bonds, Cerulli adds. It cites data from Broadridge suggesting that convertible bond and options AUM grew by €2.57bn in the first five months of 2017 – reversing a previous trend.
To read the full analysis, click here: The Cerulli Edge – Europe Edition, 3Q 2017 Issue.