What is a defining feature of convertible bonds?

Convertible bonds are distinct in that they provide the bondholder with the option to convert their bonds into a predetermined number of common shares of the issuing company, typically at a specific conversion price. This feature allows investors to participate in the potential upside of the company's stock while initially receiving the security of a bond. The ability to convert provides a strategic advantage, as bondholders can benefit from equity appreciation without needing to purchase stock directly.

This feature of convertibility is what sets these bonds apart from traditional fixed-income securities, offering a blend of characteristics from both bonds and stocks. The investor has a fixed income from interest payments, while also having the potential to profit from equity gains if the company's stock performs well.