Falling implied volatility and tighter credit spreads have led to a surge in convertible bond arbitrage activity as funds look to wrap up positions before year-end. "With implied vols nearing all-time lows, funds have been attracted to this market again," said a credit trader at a European house in Tokyo.
Dealers said turnover in low credit-quality convertibles and their credit-default swaps, including Capcom and Kojima have picked up by some 50% in the last few weeks as global funds have purchased credit protection or re-hedged existing positions at the current tighter levels.
