A hybrid financial instrument is an investment that blends the characteristics of both equity and debt. The most common form of a hybrid instrument is the convertible bond. Such security is an issuance of debt that can be converted to a company’s common stock at any given time. The advantage is that in case the company’s stock price goes down, the option will not be exercised and you will still receive interest payments on your bonds. However, if the stock price goes up, you can convert the bonds to stock at a given strike price.