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Trading and Investment Terms

Yield Advantage

The additional amount which an investor expects to earn by investing in a publicly traded company's convertible securities instead of its common stocks or can continue to earn instead of converting bonds into stocks is known as yield advantage. In simple terms, the difference between yields of two different securities issued by the same company is called yield advantage. Yield advantage is usually widest when a company issue the convertibles and priced it to attract investors. Investors buy convertible bonds to gain higher current yield. Convertible bonds are also safer than stocks at the time of bankruptcy and also provide the upside when the underlying company is successful and they converted into security. Yield spread helps the investors to decide to retain the bonds or to convert them into stock. When issuing company propose dividends on the underlying stocks could exceed the yield on convertibles.