The convertible bond market’s well-documented woes now conceal a number of potential opportunities, according to John Calamos, CEO and chief investment officer of Calamos Investments, the legendary convertible bond fund manager. While Calamos Investments is now pursuing opportunities through internationally diversified equity investments, its managers are keeping a close eye on developments in the convert market.

Widespread losses and subsequent selling among convertible arbitrage hedge funds, which have depressed prices in the secondary market (and therefore made issuance less attractive), have cast a pall over the convertible market. CSFB/Tremont’s convertible arbitrage index is down more than 3 percent for the year—the worst performer of any hedge fund investment style the firm tracks.

Calamos notes that the amount of hedge funds in the convertible space has narrowed bid-asked spreads, and the sector’s performance this year has led to some bonds becoming attractively undervalued. Hedge funds typically use short-term—often three-month—volatility to value the options in convertibles. This can lead to inaccurate pricings. Longer-term investors have the luxury of using more appropriate vol figures, and may thereby find value in converts that the hedge funds are seeking to unload, Calamos explained.