Uncertainty about the direction of the equity markets and economic conditions has investors scurrying to find safe havens for their investment dollars.  While bonds provide such safety, yields are currently very low and there is little potential for capital appreciation over the long term.  And the low interest-rate environment makes the return on holding cash virtually non-existent.  Convertible bonds, however, offer an interesting middle ground between the safety of bonds and the upside potential, and risk, of stocks. 

For those seeking income, higher-yielding convertibles might be the right answer.  Such securities may allow for the downside protection of a bond, while still providing a portion of the upside of owning stock in the issuing company.  Of course, some of the higher-yielding convertibles trade below their par value, commonly referred to as "busted", and, thus, provide minimal exposure to the upside of the underlying stock.  That said, even in these situations, there is usually more upside potential than a regular bond trading at or close to par value, assuming the financial condition of the issuing company improves over time. 

Below is a list of convertible bonds yielding greater than 6%. The collection of securities ranges from "busted" convertibles that are trading below par value to some that are trading above par value and, thus, have more meaningful exposure to the stock fluctuations of the issuing company.  In either case, the yields on all of the securities are notable.

*Prices as of August 25, 2010

Selected Convertibles Highlights:

Advanced Micro Devices (AMD) is a struggling maker of integrated circuits, producing microprocessors for desktop PCs, portable computers, and servers. The company also manufactures graphics processors and circuits for communications equipment. A strong recovery in the personal computer market has boosted demand for AMD microprocessors. In fact, our analyst estimates a 20% increase in total revenue this year. Although these shares are marked to outperform the market in the year ahead, they carry above-average risk. The company’s 6% convertible bonds due 2015 are an excellent swap for the stock if one’s tolerance for risk is low. The bonds are, by nature, less volatile (about two-thirds less volatile) and they offer a yield advantage of 6.1% with a yield to maturity of 6.5%. However, its high premium over conversion value reduces the bond’s sensitivity to the upward movement of the stock.

SunPower Corporation (SPWRA) develops and manufactures solar-electric power products used in residential, commercial, and remote power applications. Its high-efficiency silicon solar cells, which convert sunlight into electricity, generate up to 50% more power per unit area than conventional solar technologies. So far this year, a promising first quarter was followed by a disappointing second quarter. The company earned $0.13 a share in the first quarter, but lost $0.07 a share in the next, compared to a loss of $0.12 and income of $0.16 in like periods a year earlier. Still, our analyst is optimistic about sales in the intermediate term, because of the addition of about 1,500 sales representatives. The company’s 4.75% convertible bonds due 2014 are suitable for investors bullish on the long-term prospects of the stock, but wary of the near-term performance. The bonds are less volatile, offer income, and have a 10.8% yield to maturity in about four years. In addition, bondholders will partake in the movement of the stock if it rebounds to levels enjoyed in 2007 and 2008.