Nobody knows how convertible bonds work

ajacobson said:
Just about every major HF and FO that runs a trading business has a convert arb. operation. In this town, both of the big HFs employ a ton of folks in the convert arb operation. Talented convert folks are golden. If you don't fully understand them, it's probably too late to learn.
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It’s probably the most crowded hedge fund strategy on the planet.
 
"It’s probably the most crowded hedge fund strategy on the planet."

Huge business in the EU and Asia. Often overlap in markets with a robust warrant business
 
Key Instruments & Strategies
  • Long/short fundamental corporate credit
  • U.S. and international convertible bonds
  • Credit ETF, index relative value and tranches
  • Capital structure arbitrage
  • Collateralized loan obligations (CLOs)
From a tiny unknown HF with 40+ pros, in these disciplines, around the world
 
newwurldmn said:
it made him one of the largest shareholders of Goldman and the virtue of his name attached to the transaction made the calls immediately in the money.
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pretty sure he talked to the fed, treasury and the power to be, knowing that his money was safe, one of the biggest insider trades ever made.
 
newwurldmn said:
It’s probably the most crowded hedge fund strategy on the planet.
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No, that would be treasury basis and On/Off-TR. But yes, the whole space exists purely for the arb, so when it goes it goes.

PS. This said, if you're a small player, there are a ton of profitable itty-bitty things to do in the space (not coverts proper, but related instruments)
 
He probably did get a call from Hank Paulson.

he wasn’t the only one though.


mervyn said:
pretty sure he talked to the fed, treasury and the power to be, knowing that his money was safe, one of the biggest insider trades ever made.
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I'm not an expert in Convertibles but I like to read Wall Street history and I remember reading about how the credit guys would sell converts with warrants all the time. It was expected as a "sweetener." If you read The Predators' Ball by Connie Bruck she details bond offerings (converts, junk, IG, etc.) that were basically all sold with warrants (the book is mainly about Milken & Drexel, Burnham & Lambert).

In the 2020-2021 SPAC bubble I bought a few of those SPAC IPOs and almost all of them came with warrants. I still have the DWAC warrants. I think the SOFI warrants expired recently.
 
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