According to the Zhito Finance APP, bankers have indicated that the USA convertible securities market may test its pandemic-era high in 2025, with interest rates expected to remain higher than many on Wall Street anticipate, and there are no signs that strategies related to crypto assets will disappear anytime soon.

According to compiled data, the amount of stocks-linked securities issued by USA companies this year reached $81 billion, a 46% increase from 2023, marking the third highest in over a decade. Richard Duffield, Capital Markets Director for Citigroup Stocks, indicated that this figure should range between $70 billion and $90 billion next year.

Duffield stated in an interview: "We won't return to a zero interest rate environment in the short term." Interest rates are expected to remain near current levels, attracting businesses to continue financing through convertible bonds at costs lower than conventional bonds.

Although many companies have already utilized strong buyer demand to issue new convertible bonds, demand continues to flow steadily.

Josh Weismer, Head of Equity Capital Markets at Mizuho Americas, stated: "During 2020 and 2021, convertible bonds issued exceeded $200 billion. Many of these transactions require refinancing."

Cryptos become the driving force.

Cryptos trading has been the main driving force behind the issuance of convertible bonds in 2024. Although this year's largest single stock-linked transaction was Boeing's (BA.US) $5.75 billion mandatory convertible preferred stock issuance, which is part of a massive transaction supporting its balance sheet, MicroStrategy (MSTR.US) raised $6.2 billion this year through convertible bonds, encouraging several other companies to follow its strategy of buying Bitcoin through issued securities.

Several issuers in the crypto space find the pricing of trades very attractive, with some even refusing to provide coupon payments to buyers. Duffield from Citigroup noted that better conditions are a result of increased stock market volatility and the simple fact that most benchmarks are at or near historical highs.

Convertible bonds often attract hedge funds focused on arbitrage. In particular, crypto companies, where the funds buy bonds and short sell stocks, are betting on the volatility of the underlying stocks. The greater the stock volatility, the higher the trading profits.

He said, 'Since the beginning of this year, volatility has been on a downward trend, but in the past two months, volatility has picked up again. The zero-coupon bonds you see from crypto companies are a result of the extremely high volatility in the industry.'

However, Michael Gunner, portfolio manager at Acasta Partners, stated, 'We believe that the pullback in crypto prices may suppress the issuance of crypto bonds.'

Duffield also predicts that there will be more convertible bond issuance activities in the Medical Care and Technology sectors.

More proactive.mergers and acquisitions.The environment may open the door for more convertible stock sales, with mandatory convertible stock issuance expected to become part of such acquisitions. This structure can also attract different companies to utilize this mechanism alongside traditional debt, thereby appealing to a variety of potential buyer groups.

Santosh Sreenivasan, Global Head of Capital Markets Linked to Stocks at JPMorgan, stated: "Unlike convertible bonds, it provides equity Crediting for issuers and attracts income funds. I expect that this area will remain busy through 2025."

However, this does not mean that the convertible bond market will thrive universally. Sreenivasan is not as optimistic as some of his peers, believing that convertible bonds will generate over 50 billion dollars in revenue by 2025.

For some, a question mark hangs over the potential impact of policies when former President Trump returns to the White House in January. Michael Youngworth, Global Head of Convertible Bonds and Preferred Stock Strategy at Bank of America, holds an optimistic view for next year, hoping for Trump's campaign promise of reducing regulation and taxes. He indicated that the biggest downside risk is that these policies might not be successfully implemented.

Youngworth mentioned: "What will happen with the policies is uncertain. Therefore, the tail end of the distribution for the outcomes in 2025 is particularly wide, making predictions challenging."