Appreciate the insight.
Paul F.
Convertible bonds are hybrids between debt/equity. If the conversion price is higher than the current stock price, they tend to trade like bonds. If conversion is 'in the money' they tend to trade with the underlying stock price. They will likely have a higher beta than bonds, because of the equity component. However, long term bonds may still have more beta, depending on the duration of the portfolio. We would expect convertibles to move a bit slower in rate pivots (vs bonds). We would consider convertibles riskier, but with more upside. The main concern is that nearly all convertibles are allowed to pay interest and principal in shares, if the company gets into financial trouble. This can result in a dilution spiral, as typically a massive amount of shares need to be issued to meet maturity requirements. This is always accompanied by a declining stock price. It does not happen often, but for this reason we would consider them riskier than straight bonds.