Warning Signs on the Mad Rush for Convertible Bonds

Issuance of equity-linked instruments has surged. Notably, a Chinese convertible bond deal had more than $1 trillion in demand.

The Financial Times reported Chinese Bank Raises More than $7 Billion with Record Convertible Bond.

Bit of Advice

Michael Pettis at China Financial Markets has this bit of advice:

“This stuff may feel like [cheap] equity, but it’s always at the worst possible time that you discover that it is really debt.”

I took the liberty of adding the word “cheap”.

Seems appropriate given the massive over-subscription at world record levels.

Mike “Mish” Shedlock

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This post originated on MishTalk.Com

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Mish

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abend237-04
abend237-04
4 years ago

The Chinese people live under capital controls with no social safety net. With central banks everywhere promising “whatever it takes” this probably appears as close to a safe investment as it gets for them. Cosmic scale CB mismanagement begets matching moral hazard, eventually. Welcome, fellow travelers.

hmk
hmk
4 years ago
Reply to  abend237-04

Wasn’t one of President Reagan’s strategies to deal with the evil Russians was to cut off their supply of foreign currency, especially USD. We are doing the exact opposite with China and they are worse than the Soviets were back then.

gio1
gio1
4 years ago

Mish, that is 330 times… what does that make 23.000% ? crazy shit

Webej
Webej
4 years ago
Reply to  gio1

No, 33.000%

Harry-Ireland
Harry-Ireland
4 years ago

1 trillion? It’s not just that it’s a big number, but it’s just one trade, in one market!

LB412
LB412
4 years ago
Reply to  Harry-Ireland

1T RMB

Maximus_Minimus
Maximus_Minimus
4 years ago
Reply to  Harry-Ireland

1T isn’t what it used to be. Relentless printing led to this massive over-subscription. Anybody still believes in happy ending?

Harry-Ireland
Harry-Ireland
4 years ago

Nope. No happy ending. But what worries me is that we (the taxpayers) will inevitably pay for whatever collapse will take place. And aside from that being infuriating, it will probably have a tremendous impact on society.

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