In bond investing, what type of bond can be converted into shares of the issuing company?

In bond investing, a convertible bond can be converted into shares of the issuing company.

A convertible bond begins as a debt investment: the issuer promises interest payments and repayment of principal, usually at maturity. Its conversion feature gives the bondholder the option to exchange the bond for a predetermined number of the issuer’s common shares under specified terms.

This structure links the bond’s value to both interest rates and the company’s stock price. If the shares rise substantially, conversion may become attractive. If the shares perform poorly, the investor may instead continue holding the bond and receiving its contractual payments, subject to the issuer’s creditworthiness.

Convertible bonds are not the same as callable bonds. A callable bond gives the issuer a right to repay the debt early, while a convertible bond gives the investor a conversion right. Conversion ratios, conversion prices, maturity dates, and coupon rates vary by issue.