www.scribd.com Open in urlscan Pro
151.101.194.152 Public Scan

Back to summary

Submitted URL:
https://es.scribd.com/document/779469950/Barclays-USConvertiblesStrategyTacticalTradesBalancedBondswBetterRiskRewardHi...
Effective URL:
https://www.scribd.com/document/779469950/Barclays-USConvertiblesStrategyTacticalTradesBalancedBondswBetterRiskRewardHi...
Submission: On December 10 via manual (December 10th 2024, 2:38:33 pm UTC) from US — Scanned from GB

Form analysis
1 forms found in the DOM

<form class="search_form">
  <div class="SearchForm-module_inputWrapper__6iIKb"><button type="button" class="SearchForm-module_closeRelatedSearchButton__c9LSI"><span class="SvgIcon-module_wrapper__1fPqw icon"><svg width="16" height="16" fill="none"
          xmlns="http://www.w3.org/2000/svg" role="img" aria-hidden="true" class="SvgIcon-module_icon__sUHUn">
          <path fill-rule="evenodd" clip-rule="evenodd" d="M4.414 7l3.293-3.293-1.414-1.414-5 5L.586 8l.707.707 5 5 1.414-1.414L4.414 9H15V7H4.414z" fill="currentColor"></path>
        </svg><span style="border:0;clip:rect(0 0 0 0);height:1px;margin:-1px;overflow:hidden;padding:0;position:absolute;width:1px;white-space:nowrap;word-wrap:normal">Close suggestions</span></span></button><label><span
        style="border:0;clip:rect(0 0 0 0);height:1px;margin:-1px;overflow:hidden;padding:0;position:absolute;width:1px;white-space:nowrap;word-wrap:normal">Search</span><input type="search" autocapitalize="off" autocomplete="off" autocorrect="off"
        class="SearchForm-module_searchInput__l73oF" data-e2e="megamenu-top-bar-search-input" id="header_search_input" name="query" placeholder="Search" value=""></label><button aria-disabled="false"
      class="TextButton-module_wrapper__ZwW-w TextButton-module_default__ekglb SearchForm-module_searchButton__4f-rn no_spinner" data-e2e="megamenu-top-bar-search-button" type="submit"><span class="TextButton-module_content__6x-Ra"><span
          class="TextButton-module_children__HwxUl"><span class="SvgIcon-module_wrapper__1fPqw icon"><svg width="24" height="24" fill="none" xmlns="http://www.w3.org/2000/svg" role="img" aria-hidden="true" class="SvgIcon-module_icon__sUHUn">
              <path d="M20.71 20.29l-4.4-4.4A7.874 7.874 0 0018 11c0-4.41-3.59-8-8-8s-8 3.59-8 8 3.59 8 8 8c1.85 0 3.54-.63 4.9-1.69l4.4 4.4 1.41-1.42zM10 17c-3.31 0-6-2.69-6-6s2.69-6 6-6 6 2.69 6 6-2.69 6-6 6z" fill="currentColor"></path>
            </svg></span><span style="border:0;clip:rect(0 0 0 0);height:1px;margin:-1px;overflow:hidden;padding:0;position:absolute;width:1px;white-space:nowrap;word-wrap:normal">Search</span></span></span></button></div>
</form>

Text Content

Open navigation menu
Close suggestionsSearchSearch
enChange Language
UploadDownload free for 30 days
User Settings

close menu

Welcome to Scribd!

* Upload
* Read for free
* FAQ and support
* Language (EN)
* Sign in

0 ratings0% found this document useful (0 votes)

4 views

TACTICAL TRADES: BALANCED BONDS W/ BETTER RISK/REWARD & HIGH THETA BONDS TO
AVOID

UPLOADED BY

iyka.documents

AI-enhanced

Document Information
Download
SaveSave Barclays_USConvertiblesStrategyTacticalTradesBalan... For Later
0%0% found this document useful, undefined
0%, undefined
Embed
Share
Print
Report

TACTICAL TRADES: BALANCED BONDS W/ BETTER RISK/REWARD & HIGH THETA BONDS TO
AVOID

UPLOADED BY

iyka.documents
0 ratings0% found this document useful (0 votes)

4 views

15 pages

AI-enhanced title

DOCUMENT INFORMATION

click to expand document information

ORIGINAL TITLE

Barclays_USConvertiblesStrategyTacticalTradesBalancedBondswBetterRiskRewardHighThetaBondstoAvoid_Jul_31_2023

AVAILABLE FORMATS

PDF, TXT or read online from Scribd

SHARE THIS DOCUMENT

SHARE OR EMBED DOCUMENT

SHARING OPTIONS

* Share on Facebook, opens a new window
Facebook
* Share on Twitter, opens a new window
Twitter
* Share on LinkedIn, opens a new window
LinkedIn
* Share with Email, opens mail client
Email
* Copy link
Copy link

DID YOU FIND THIS DOCUMENT USEFUL?

0%0% found this document useful, Mark this document as useful
0%0% found this document not useful, Mark this document as not useful

IS THIS CONTENT INAPPROPRIATE?

Report
Download now
Download as pdf or txt
SaveSave Barclays_USConvertiblesStrategyTacticalTradesBalan... For Later
0 ratings0% found this document useful (0 votes)
4 views15 pages

TACTICAL TRADES: BALANCED BONDS W/ BETTER RISK/REWARD & HIGH THETA BONDS TO
AVOID

UPLOADED BY

iyka.documents

AI-enhanced title

Document Information
SaveSave Barclays_USConvertiblesStrategyTacticalTradesBalan... For Later
0%0% found this document useful, undefined
0%, undefined
Embed
Share
Print
Report
Download now
Download as pdf or txt
Jump to Page

You are on page 1of 15
Search inside document

Equity Research
31 July 2023
U.S. Convertibles Strategy
Tactical Trades: Balanced Bonds w/ Better Risk/Reward & High Theta Bonds to
Avoid
Given the strong stock rally and continued uncertainties in the macro
environment, we recommend swapping high theta short-maturity premium decaying
bonds into balanced bonds for better risk/reward.
With risks of a severe economic contraction receding over 1H23, equities have
rallied sharply. YTD (as of 07/27/2023) US converts have gained +10.8% on the
back of underlying equities’ outperformance (+20.6%), SPX (+19.3%), Russell 2000
(+11.9%), HY (+6.5%), IG (+2.9%), and 5-7Y Treasuries (+0.8%). Barclays’ U.S.
equity strategist’s S&P 500 2023 year-end base case and bear case price targets
are currently at 4,150 and 3,650, ~8.5% and ~19.6% below current levels,
respectively. Our strategy team expects equities to remain range-bound through
year end, and does not see the Tech-centric rally broadening to the rest of S&P.
Against this backdrop, we suggest lightening exposure to relatively
short-maturity high-premium decay bonds that have poor risk-reward profiles. We
screen for names and identify two pools of convertible bonds: 1) bonds with
poor-risk reward that investors should consider lightening up on, and 2)
balanced bonds with appealing equity exposure that provides attractive
alternatives.
High Theta Bonds with poor-risk reward (Lighten):
We’ve estimated the total hold to maturity returns of bonds (face amount
>$200mn) that mature within two years and have calculated the average of the
total return under three scenarios (stock +10%, flat and -10%). The nine bonds
with the lowest average hold to maturity total returns are DOG 0.125% due 2025
(-9.7%), WGO 1.5% due 2025 (-8.8%), MCHP 0.125% due 2024 (-8.7%), LI 0.25% due
2028 (-8.1%), EXAS 1% due 2025 (-6.8%), LUV 1.25% due 2025 (-5.8%), LYV 0.5% due
2050 (-5.3%), AKAM 0.125% due 2025 (-5.2%) and BILI 1.375% due 2026 (-5.2%).
Balanced bonds with appealing equity exposure (Hold):
We identify nine balanced convertible bonds with appealing equity exposure
(i.e., underlying stocks rated Overweight or Equal Weight by Barclays’ Equity
Research analysts with positive upside potential) along with convexity. Our set
has a market value average price of 98.7 with an average (market value-weighted)
current yield of 1.4%, premium of 37%, delta of 58.8%, stock sensitivity of 43%
and years to put/maturity of 3.9. Barclays Capital Inc. and/or one of its
aﬀiliates does and seeks to do business with companies covered in its research
reports. As a result, investors should be aware that the firm may have a
conflict of interest that could aﬀect the objectivity of this report. Investors
should consider this report as only a single factor in making their investment
decision.
Please see analyst certifications and important disclosures beginning on page 7
.
CORE
U.S. Convertibles Strategy
Manoj Shivdasani, CFA
+1 212 526 5995 manoj.shivdasani@barclays.com BCI, US
Venu Krishna, CFA
+1 212 526 7328 venu.krishna@barclays.com BCI, US Jack Leung +1 212 526 8432
jack.leung@barclays.com BCI, US
Completed: 28-Jul-23, 16:22 GMTReleased: 31-Jul-23, 04:10 GMTRestricted -
External

adDownload to read ad-free

31 July 20232
Barclays | U.S. Convertibles Strategy
Attractive Balanced Bonds for Better Risk-Reward with Stocks Rallying Sharply
With risks of a severe economic contraction receding over 1H23, equities have
rallied sharply. YTD (as of 07/27/2023) US converts have gained +10.8% on the
back of underlying equities’ outperformance (+20.6%), SPX (+19.3%), Russell 2000
(+11.9%), HY (+6.5%), IG (+2.9%), and 5-7Y Treasuries (+0.8%). Barclays’ U.S.
Equity strategist’s S&P500 2023 year-end base case and bear case price targets
are currently at 4,150 and 3,650, ~8.5% and ~19.6% below current levels,
respectively. Equities are expected to remain range-bound through year end, and
the team does not see the Tech-centric rally broadening to the rest of S&P.
Please refer to Range bound into the second half published on 10 Jul 2023, for
details. Post-1Q23 guidance, select Tech verticals (such as public cloud and
digital ad spend) are seeing green shoots, the semiconductor industry cycle is
close to bottoming, while artificial intelligence (AI) is emerging as a major
potential growth driver, which has catalyzed a widening gulf between the Tech
sector and the rest of the S&P 500 in terms of profitability outlook.
FIGURE 1. YTD U.S. Converts have delivered ~11% on the back of a strong equity
rally and outperformance of convert underlying equities
10.820.619.311.96.52.90510152025Bloomberg USConvertiblesOverallCompositeUS
Convertibles'UnderlyingEquitiesS&P 500Russell 2000Bloomberg USHYBloomberg US
IGCorp2023YTD Total Returns (%)
Source: Bloomberg, Barclays Research, as of 07/27/2023

You're Reading a Preview

Upload your documents to download.

Become a Scribd member for full access. Your first 30 days are free.

Continue for Free
adDownload to read ad-free

31 July 20233
Barclays | U.S. Convertibles Strategy
Valuations for S&P 500 ex-Tech have diverged significantly from fair value as
implied by Barclays’ macro-based framework. The team estimates that ex-Tech was
trading at fair value through most of 2022, but began to embed a widening
premium as equity markets approached the October lows. In fact, ex-Tech is
currently trading at the highest premium to fair value since the October lows
aer getting caught up in the wave of valuation expansion triggered by the
Tech-centric rally (Stacking the AI Deck, 26 Jun 2023). Against this backdrop,
we suggest investors avoid short-maturity high-premium decay bonds that have
poor risk-reward profiles. We screen for names and identify two pools of
convertible bonds: 1) bonds with poor-risk reward that investors should consider
lightening up on, and 2) balanced bonds with appealing equity exposure that
provides attractive alternatives to hold.
FIGURE 4. SPX ex-Tech is trading at the highest premium to fair value since the
October equity market lows
Source: Refinitiv, Bloomberg, Barclays Research, as of 06/30/2023
FIGURE 2. While Big Tech was among the first to see cuts in 2022...FIGURE 3.
...FY23 and FY24 estimates for Big Tech stocks have seen strong upward revisions
YTD
BigTech (Meta, Alphabet, Microso, Amazon, Apple, Nvdia). HARD_SEMIxx = Hardware
& Semis ex. Apple, Nvdia. SOFTWx = Soware & Services ex. Microso. Data as of
6/30/2023BigTech (Meta, Alphabet, Microso, Amazon, Apple, Nvdia). HARD_SEMIxx =
Hardware & Semis ex. Apple, Nvdia. SOFTWx = Soware & Services ex. Microso.
Data as of 6/30/2023Source: Refinitiv, Barclays ResearchSource: Refinitiv,
Barclays Research

You're Reading a Preview

Upload your documents to download.

Become a Scribd member for full access. Your first 30 days are free.

Continue for Free
adDownload to read ad-free

31 July 20234
Barclays | U.S. Convertibles Strategy
High Theta Convertible Bonds with Unattractive Risk-Reward
To arrive at this high theta, unattractive screen, we first screen for all bonds
(face amount >$200mn & Convert Price < 150) that mature in two years or less. We
then run a hold-to-maturity total return analysis for each of these bonds under
five diﬀerent scenarios (stock -20%; stock -10%; stock flat; stock +10%; and
stock +20%). We then calculate the average of potential total returns in three
diﬀerent scenarios (stock -10%; flat; and +10%) and sort in order of the worst
returns first. The table of returns through maturity clearly shows how the
premium decay in these bonds negatively aﬀects their risk-reward.
Attractive Balanced Convertible Bonds with Appealing Equity Exposure
To arrive at a list of balanced bonds we used the following criteria: Years to
Put or Maturity greater than 2 years and less than 7 years
•
Amount Outstanding greater than $250 million
•
Price between 80 and 125
•
Years to call greater than 2 years
•
Eﬀective stock sensitivity (i.e., Delta % /(1+premium %)) of at least 30%
•
Underlying stocks are rated Overweight or Equal Weight by Barclays’ Equity
Research
•
analysts with positive upside potential
You're Reading a Preview

Upload your documents to download.

Become a Scribd member for full access. Your first 30 days are free.

Continue for Free
adDownload to read ad-free

adDownload to read ad-free

REWARD YOUR CURIOSITY

Everything you want to read.
Anytime. Anywhere. Any device.
Read free for 30 days
No Commitment. Cancel anytime.

SHARE THIS DOCUMENT

SHARE OR EMBED DOCUMENT

SHARING OPTIONS

* Share on Facebook, opens a new window
* Share on Twitter, opens a new window
* Share on LinkedIn, opens a new window
* Share with Email, opens mail client
* Copy link

www.scribd.com Open in urlscan Pro 151.101.194.152 Public Scan

Form analysis 1 forms found in the DOM

Text Content

www.scribd.com Open in urlscan Pro
151.101.194.152 Public Scan

Form analysis
1 forms found in the DOM