The opening months of 2026 put convertible bonds through the kind of stress test that either validates a thesis or exposes it. During the sharp sell-off leading up to the market bottom on 30 March, the FTSE Global Focus Convertible (USD Hedged) Index fell 2.27% against a parity decline of 5.84% − a downside participation rate of 39%1. The recovery that followed was equally instructive: from the bottom through to 29 May, the index gained 12.68% against a parity rise of 20.74%, capturing 61% of the upside2. Over the same period, the MSCI World USD Hedged Index gained 16.73%3.
These results perfectly demonstrate the asymmetry characteristic (limited downside participation, meaningful upside capture) that convertibles have always promised.
The convexity thesis is not new, so why now? What made the first half of this year stand out was that three structural conditions aligned for the first time in over a decade.
The bond floor has substance again. After years in which near-zero rates left the fixed income component of convertibles offering negligible protection, the current yield environment has restored a genuine floor.
Dispersion is high and rising. When some stocks are up 50% and others down 30%, driven by earnings surprises, policy shifts, or structural disruption, convexity comes into its own. H1 2026 delivered exactly that environment: a handful of AI, semiconductor, and infrastructure names drove the bulk of benchmark returns while many others lagged or fell.
Macro uncertainty is structurally elevated. When the range of potential outcomes is wide, investors face a positioning problem: too defensive and you miss the recovery; too aggressive and you absorb the drawdown. Convertibles allow you to avoid a single-outcome bet. They are a way of remaining invested across a range of scenarios at an asymmetric cost.
What the primary market confirms
This year's investment case has been accompanied by a primary market running at record pace. USD87 billion has been issued in 2026 already4, on track to surpass last year's record of USD160 billion. Critically, the pipeline is broad and increasingly dominated by high-quality structures with genuine bond floors. Record secondary volumes, a more diverse issuer set, and growing institutional participation point to a market in structural transition. That said, rising issuance brings its own discipline requirements: credit quality at the margin bears watching, names trading at 80–100 delta retain little of the bond floor protection that defines convertible value, and geographic concentration, particularly in US technology, is a risk that must be observed and managed through diversification across Europe, Asia, and non-technology sectors. The strength of the market's growth does not eliminate these tensions; it makes navigating them more important.
The convertible bond market has spent years waiting for the conditions that would allow it to do what it is designed to do. Those conditions are now in place, and H1 2026 provided a live demonstration.
1 Mirabaud Asset Management, 29 May 2026
2 Mirabaud Asset Management, 29 May 2026
3 MSCI, 29 May 2026
4 Bloomberg, Mirabaud Asset Management, 29 May 2026
MID-YEAR 2026 INVESTMENT VIEW
Convertible Bonds
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