Convertible bond issuance surged through the first half of 2025, presenting issuers with a golden opportunity to raise capital on highly attractive terms
There has rarely been a better time for companies to raise capital on the convertible bond market.
Convertible bond issuance totaled US$80.1 billion globally for the first six months of 2025—a 17.6% increase on the same period last year and the strongest first half since the peak of the market in H1 2021 (US$127.7 billion), according to Debtwire.
Momentum was particularly strong toward the end of H1 2025, with issuance in June alone totaling US$30.1 billion across 71 deals—the highest monthly sum recorded since the 92 deals totaling US$36.4 billion in March 2021.
Volatility drives opportunity
Equity market uncertainty has benefited convertible bond markets. Sharp shifts in US trade policy led to spikes in stock market volatility following the April 2“Liberation Day” tariff announcements. On April 8, the VIX index, a measure of equity market volatility, climbed to the highest levels by far observed since the onset of the Covid-19 pandemic in Q1 2020.
The issuance of convertible bonds (bonds that can be converted into shares when stock prices reach certain thresholds) become more attractive to investors during periods of volatility. In choppy markets, traditional “long-only” investors take advantage of the downside protection offered by the convertible bond structure, while hedge funds, who make up a meaningful proportion of the convertible bond investor base, use convertible bonds as a tool to support executing on a delta-hedging strategy.
The market has also offered investors a degree of protection against tariff risk. The typical convertible bond issuer will be a high-growth company, often in the technology sector, that can offer equity upside to investors when bonds convert to shares. These tech groups are often less exposed to changes in tariffs on goods, offering a degree of visibility on future earnings and capital requirements.
Attractive terms
This buoyant demand for convertible bonds has put issuers in a strong position to negotiate highly favorable terms. For instance, some companies, such as data management specialist Rubrik and video games group GameStop, have issued zero coupon convertible bonds allowing for borrowed money with no interest payable.
In a market where interest rates are still elevated and financing costs are high, convertible bonds are an ideal way for high-growth companies to raise capital at a significantly lower cost than what would be available from banks, private credit and public debt markets.
Borrowers have also been able to negotiate high conversion premiums—the terms that specify how much an issuer’s stock price must increase for the bond notes to convert into equity.
Rubrik, for example, was able to price its US$1.15 billion zero-coupon convertible bond with a 42.5% conversion premium, while cybersecurity business Cloudflare secured a 45% conversion premium for its recent US$2 billion convertible bond offering.
Navigating technical complexities
Increasing numbers of issuers are also using derivative structures to help mitigate dilution when the rise in stock prices pushes convertible bonds into the money beyond the conversion price.
These derivatives entered into between the company issuing the convertible bond and one or multiple bank counterparties allow issuers to protect themselves against share dilution above the conversion price by seeking shares and/or cash from the counterparties in amounts above and beyond the conversion price, but subject to a cap, either built into the derivative (e.g. a capped call) or through a separate warrant.
Moreover, these derivative tools provide issuers with valuable protection against equity dilution when shares do clear conversion premiums. However, deal execution can be complex and there are important tax and accounting implications, which issuers must consider with advisors before putting derivatives in place.
Another technical nuance of the convertible bond process is the fact that hedge fund investors, who are buying up convertible bonds to drive returns through cycles of volatility, will short the underlying stock of the convertible bond issuer to capitalize on the volatility in share price. This is common practice. Hedge fund investors set up short positions ahead of investing in convertible bonds to arbitrage situations where the issuer’s stock falls rather than rises.
As a result, an issuer’s stock will often drop when announcing a convertible bond launch. However, issuers will often mitigate this downward pressure with a concurrent share buyback, simultaneously allowing them to repurchase shares at an attractive price. This also benefits the delta hedging investors, as the added buyside demand helps to stabilize the stock price while they set up their short position.
An upbeat outlook
The outlook for the convertibles market in the second half of the year is broadly positive. Volatility has settled from the remarkable levels observed early in Q2, but continues to hover over stock markets, sustaining the underlying drivers for ongoing convertible bond issuance.
Meanwhile, Bank of America figures highlight that a large share of convertible bonds issued in 2021 are now approaching maturity—around US$65 billion worth of convertibles issued during that pandemic period are set to mature in 2026. Investors in these bonds will be moving to recycle these coming maturities into the next tenor of convertibles, providing additional buyside momentum for future issuance.
For companies considering issuing convertible bonds, this could be an ideal opportunity to jump into the market.
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