Archived material may contain dated performance, risk and other information. Current performance may be lower or higher than the performance quoted in the archived material. For the most recent month-end fund performance information visit www.calamos.com. Archived material may contain dated opinions and estimates based on our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions at the time of publishing. We believed the information provided here was reliable, but do not warrant its accuracy or completeness. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The views and strategies described may not be suitable for all investors. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. References to future returns are not promises or even estimates of actual returns a client portfolio may achieve. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation.

Performance data quoted represents past performance, which is no guarantee of future results. Current performance may be lower or higher than the performance quoted. The principal value and return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Performance reflected at NAV does not include the Fund’s maximum front-end sales load. Had it been included, the Fund’s return would have been lower.

Archived on July 17, 2019

CoCos Are a No-Go for Calamos

Convertible Perspectives by Eli Pars, CFA

Contingent convertible bonds (“CoCos”) have been in the news lately. And not in a good way. As several European banks have reported poor earnings recently, investors have become concerned again about banks. Cocos have been ground zero for those fears.

Banks have issued CoCos over the past few years to meet Additional Tier 1 and Tier 2 capital requirements under Basel III. The CoCos of a number of big European banks have been in virtual freefall in recent weeks, with some falling to as low as 70 cents on the dollar after trading above par in 2015. From what we hear, this is all happening with limited liquidity as there are apparently few buyers of these bonds.

Two years ago, in our blog “CoCos: An Overview of the Anti-Convertible Bond,” we explained why we were avoiding CoCos:

In many ways, a CoCo is the mirror image of a convertible bond. Instead of the equity upside participation and potential downside protection that can make a convertible bond so attractive, CoCos may have much higher potential downside. … CoCos typically pay higher coupons than a bank's straight bonds. However, if the bank gets in trouble (think 2008), these bonds turn into equities …

In our convertible portfolios, we're focused on upside equity participation with potential downside protection over full market cycles. Because the risk/reward profile of these bank CoCos is the opposite of the risk/reward profile we look for in convertible bonds, we are quite willing to pass them by.

Now that a whiff of fear is in the air, apparently many holders of these bonds are beginning to understand our concerns. (You can read the full blog here.)



    The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. Information contained herein is for informational purposes only and should not be considered investment advice.

    The information in this report should not be considered a recommendation to purchase or sell any particular security. Calamos portfolios are actively managed and subject to change daily. Convertible securities entail credit risk and interest rate risk. Additional Tier 1 and Tier 2 capital are categories of capital under Basel III, a global bank regulatory framework.

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    Archived material may contain dated performance, risk and other information. Current performance may be lower or higher than the performance quoted in the archived material. For the most recent month-end performance information, please CLICK HERE. Archived material may contain dated opinions and estimates based on our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions at the time of publishing. We believed the information provided here was reliable, but do not warrant its accuracy or completeness. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The views and strategies described may not be suitable for all investors. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. References to future returns are not promises or even estimates of actual returns a client portfolio may achieve. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation.

    Performance data quoted represents past performance, which is no guarantee of future results. Current performance may be lower or higher than the performance quoted. The principal value and return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Performance reflected at NAV does not include the Fund’s maximum front-end sales load. Had it been included, the Fund’s return would have been lower. For the most recent month-end fund performance information visit www.calamos.com.