Summary
Asset-class momentum is strong and broad-based. Record issuance, deep liquidity and robust secondary performance show a fully re-engaged convertibles market heading into 2026.
The opportunity set is improving in quality. New, more balanced structures and attractive valuations in the underlying equities enhance asymmetry and support selective upside.
AI-driven dispersion is the defining theme. Nearly half of recent US issuance is AI-linked, creating volatility but also rich stock-picking potential for active managers.
Active allocation remains essential. A quality-tilted, selective pro-risk stance is well suited to a landscape of earnings breadth, rotations, and ongoing M&A and policy catalysts.
After a good second half of 2024 and an even stronger 2025, we think it is fair to say that convertibles are finally back!
2025 has already become the busiest issuance year ever recorded for the primary market, with close to USD 155 bn issued globally year-to-date (YTD)1. On the secondary front, the FTSE Russell Global Convertibles Index is up 19.66%2 YTD, only 193bps below the MSCI World3, while convertible bonds’ underlying equites are up 27.62%4, finally outperforming broader global equities. This year is also the busiest year ever for secondary trading volumes, with more than twice the global convertibles market capitalisation traded YTD5, largely surpassing global equities and fixed income.
2026 outlook: renewed breadth and better structures
As we look to 2026, there are good reasons to believe this positive trajectory is likely to continue.
With stubbornly high interest rates and volatility, the cost advantage for convertibles over traditional debt remains intact for issuers, with close to USD 90 bn6 in expected maturities and redemptions over the year.
As far as the secondary market is concerned, we expect both convertibles and their underlying equities to do well. For convertibles, the renewal of the opportunity set via the issuance of investor-friendly, balanced instruments should further enhance asymmetry. For the underlying equities, their valuations are down on the year, despite their outperformance against larger peers, as earnings breadth improved leading to earnings expectations that outpaced their price return.
This is especially important in a context of looser monetary and fiscal policies, as global economies rebound from a tariff-uncertainty-induced slowdown, conditions that have historically proved to be tailwinds for smaller caps.
AI dispersion: friend, foe – or both?
A hotly debated topic, we anticipate AI is likely to, once again, be the main source of dispersion in 2026. Specifically for convertibles, although it has proved to be a tailwind so far, the jury remains out on declaring whether AI is friend or foe.
Of the USD 45 bn of US convertible issuance since August 2025, a staggering 50%7 has been AI-related in one way, shape or form. These younger, more volatile companies naturally gravitate toward convertible debt as a fast, flexible way to fund high CapEx stacks, even if it means sharing their successes with bondholders. This induces more volatility for convertible bonds’ underlying equities, which can be a good thing for valuations, but could also prove to be painful if cold water is suddenly poured on these high-flying stocks. However it evolves, AI adoption is accelerating, which we expect will result in intra- and inter-sector rotations, depending on which side of the fence companies are on.
Positioning:selective beta, quality first
To navigate this ‘Goldilocks’ environment, we maintain a quality-biased, moderately pro-risk stance within our portfolios, increasing beta selectively across growth and cyclicals, with flexibility to add on dislocations as market breadth improves. We are transitioning from defensively late-cycle positioning toward a measured pro-risk stance, emphasising quality and select cyclicals as earnings revision breadth stabilises and inflation trends lower. This landscape of dispersion and rotations favours active management, the only style that allows investors to make the most of the elevated volatility.
In this case, we view this volatility not as a source of risk, but rather as one of the main sources of opportunity.
M&A: a quiet tailwind with upside potential
Finally, M&A has brought some surprises this year. While small- and mid-caps usually make the bulk of the targets in our space, large-cap deals have also made an appearance: Altair Engineering, US Steel, Exact Sciences, CyberArk, TXNM Energy, and Dayforce to name a few. Convertibles remain a useful instrument for gaining exposure to this theme. If a bond is ‘out of the money’, holders have the right to ask for early redemption upon completion of the deal. If it is ‘in the money’, investors can convert into cash or new shares at an enhanced ratio.
Policy, politics and the 2026 catalyst
As we get closer to the 2026 US mid-term elections, the Trump administration is expected to focus on policies stimulating the economy, with deregulation being the most consensual. With growth picking up and easier financing conditions ahead, we expect smaller, more innovative companies to offer fertile ground for larger acquirers – using convertibles to finance their buying sprees.
1 Bank of America, Mirabaud Asset Management, as at 26 November 2025
2 FTSE Russell, as at 26 November 2025
3 MSCI World USD Hedged, as at 26 November 2025
4 FTSE Russell Global Focus Parity Index, as at 26 November 2025
5 TRACE, Mirabaud Asset Management, as at 26 November 2025
6 Bank of America
7 Barclays, as at 26 November 2025
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