Convertible-bond investors chasing exposure to the artificial intelligence boom are surrendering standard protections as coupons on some new deals have fallen toward zero, moving the market back to risk-taking last seen during the pandemic.
Buyers are effectively betting that share-price gains will supply returns, a trade that has made convertibles increasingly biased toward equities and weakened the income and downside cushion that usually attract bond investors.
That pattern has dovetailed with a surge of issuance over the past year, including sizeable deals from companies tapping markets to fund AI spending, with average conversion premia reported near multi-year highs and large issuers such as Alibaba, Lumentum and Super Micro Computer among those using convertibles to finance AI investment.
Banks expect continued strong demand for convertibles as AI spending persists, a backdrop that could leave the market exposed if the AI enthusiasm that underpins equity upside cools.
