Convertible Bonds Show Strong Performance, Positive Outlook

Convertible bonds have experienced a significant rally, posting a 16% performance since the start of 2026, a period that followed an exceptionally strong 2025 for the asset class. This performance has doubled that of the global equity market year-to-date. Several factors suggest the positive environment for convertible bonds may continue, including a solid economic outlook, a vibrant primary market for new issuances, and a growing proportion of high-quality issuers.

Analysts at Hermann Bantleon GmbH point to several drivers supporting this trend. The firm notes that the strong performance of convertible bonds is primarily linked to the rising stock prices of issuing companies. Despite already elevated valuations in many equity markets, stable economic growth historically allows for further increases. The risk parameters for convertible bonds remain moderate, even with high stock market levels, suggesting continued value potential.

The primary market for convertible bonds has also been a key contributor, with 2025 marking the strongest year for new issuance volume in 18 years. The outlook for 2026 remains robust, characterized by attractive valuations and a sustained high share of investment-grade bonds. This trend towards higher-quality issuers, particularly observed in the US, enhances opportunities by introducing new entities with favorable risk-reward profiles and reinforcing the asset class's convexity.

Emerging themes such as artificial intelligence, digital assets, and rare earth metals are also bolstering the convertible bond market. These growth areas are more significantly represented in convertible bonds than in major equity indices, creating a balanced mix of growth and quality themes. Furthermore, increased secondary market trading volumes indicate rising investor interest and improved transaction efficiency, reinforcing the constructive outlook for the asset class.