Convertible-Bond Game Becomes Riskier
This ought to be a great time to invest in convertible bonds.</br></br>On the one hand, many investors are jittery because of unexpected skids in stock prices, rising inflation and higher interest rates. On the other hand, the possibility of further stock market advances and a downturn in interest rates later this year makes them reluctant to head for the exit.</br></br>"Convertible bonds offer a defensive way to take your foot off the equity throttle while keeping a finger in equity-like performance," says Michael Rodier, associate portfolio manager at Wellington Management Co.</br></br>That's fine, in theory. But new wrinkles have made investing in convertible bonds a dicier game than ever to play, even for professional fund managers.</br></br>"There certainly are a couple of caution lights on here that weren't present several months ago," says Charles Boillod, executive vice president at Shearson Lehman Hutton Inc. "You've got to be much more careful now."