Q1 2026 Convertible Bonds Review: Spring Fever and External Disruptions Continue, Valuations Surge and Pull Back

(Source: Guannan Fixed Income Collection View)

Abstract

2026Q1 convertible bond market: rally then pullback; under geopolitical risk, volatile retracement

In 2026Q1, the convertible bond index rose first and then fell. In a horizontal comparison, the convertible bond index in 2026Q1 outperformed the SSE 50, CSI 300, and STAR 50, but lagged smaller-cap indexes such as CSI 1000 and CSI 2000, as well as the underlying equity stock indexes. Judging from the index trend and major driving events, the convertible bond market in 26Q1 can be divided into three stages: (1) from the start of the year to January 28, the equity market benefited from the spring rally combined with technological theme catalysts, and overall continued the pre–New Year’s Day warmth; regulators increased the financing margin ratio, which slightly eased overheated sentiment in the stock market. Convertible bond ETF shares continued to grow; supported by liquidity, convertible bonds rose along with the equity market; (2) from January 29 to February 27, at the end of January Iran announced it was entering a state of emergency, adding external disturbances; combined with the performance-forecast disclosure window, the market shifted from emotion + valuation to performance validation, and the equity market’s pullback became relatively more obvious. In early February, convertible bond funds rushed to build positions, creating historical valuation highs around the Spring Festival. In the end-of-month period, the “par value pullback + valuation digestion” amplified the decline in convertible bonds, leading to overall performance worse than the equity market; (3) from March 2 to March 31, geopolitical risk in March further escalated. The “fixed-income+” redemption theme unfolded; combined with the upcoming earnings-report season, the market’s overall risk appetite weakened. In a high-valuation environment, convertible bonds were relatively fragile. On March 3B纬转债’s unexpectedly strong redemption dragged down the convertible bond performance. At the end of the month, high-price and short remaining-maturity products faced clear pressure, and the convertible bond index pulled back back toward the level at the start of the year.

Stage recap: frenzy — consolidation — pullback

First stage: spring frenzy + theme catalyst; the equity market opens strong (0105-0128). From January 5 to January 28, the equity market performed strongly, benefiting from spring frenzy combined with catalysts from the dual themes of technology & cycles. Margin trading balance expanded at an accelerated pace, and Northbound funds also had consecutive net inflows. Driven by aggressive buying and rising sentiment, convertible bonds quickly strengthened. Over the same period, the convertible bond index rose 8.45%, while the par-value average lifted 4.62% to 106.19 yuan. Convertible bonds showed an independent trend; market valuation was raised sharply by 4.09pct to 38.14% compared with the end of 2025.

Second stage: convertible bond market first suppressed then recovered; high valuations shift toward digestion (0129-0227). From January 29 to February 27, convertible bonds and underlying stocks as a whole continued to be relatively strong. The Wind All A index rose 1.15%, and the par-value average rose 3.01% from the end of February to 109.38 yuan; the convertible bond index fell slightly by 1.55%. Convertible bond funds rushed to build positions, creating historical valuation highs around the Spring Festival. During the end-of-month pullback, “par-value decline + valuation digestion” amplified the decline in convertible bonds, and overall performance lagged the equity market. As a result, the hundred-yuan-fitting premium rate only increased slightly by 0.98pct to 39.12%.

Third stage: geopolitical conflict continues to unfold; unexpectedly strong redemption drags performance (0302-0331). From March 2 to March 31, both the convertible bond and equity markets pulled back. The Wind All A index fell 8.73%, and the par-value average dropped 9.29% to 99.22. The convertible bond index fell 7.41%, underperforming more than the underlying stock index. On the one hand, as April’s earnings disclosure period approached, the equity market’s seasonal weaker window opened; convertible bond allocation funds turned toward taking profits. “Fixed-income+” shifted to net redemptions, and ETF declines also confirmed that earlier capital support gradually weakened. On the other hand, affected by 亿纬转债’s unexpectedly strong redemption, market pricing of strong-redemption risk suppressed the performance of some issues; overall convertible bond valuation compressed sharply by 6.47pct to 32.65%.

Risk warning: the degree of economic recovery underperforms expectations, external markets’ disturbances exceed expectations, adjustments to monetary policy exceed expectations, etc.

Table of contents

Main text

I

2026Q1 convertible bond market: rally then pullback; under geopolitical risk, volatile retracement

In 2026Q1, the convertible bond index rose first and then fell. In a horizontal comparison, the convertible bond index in 2026Q1 outperformed the SSE 50, CSI 300, and STAR 50, but lagged smaller-cap indexes such as CSI 1000 and CSI 2000, as well as the underlying equity stock indexes. Judging from the index trend and major driving events, the convertible bond market in 26Q1 can be divided into three stages: (1) from the start of the year to January 28, the equity market benefited from the spring rally combined with technological theme catalysts, and overall continued the pre–New Year’s Day warmth; regulators increased the financing margin ratio, which slightly eased overheated sentiment in the stock market. Convertible bond ETF shares continued to grow; supported by liquidity, convertible bonds rose along with the equity market; (2) from January 29 to February 27, at the end of January Iran announced it was entering a state of emergency, adding external disturbances; combined with the performance-forecast disclosure window, the market shifted from emotion + valuation to performance validation, and the equity market’s pullback became relatively more obvious. In early February, convertible bond funds rushed to build positions, creating historical valuation highs around the Spring Festival. In the end-of-month period, the “par value pullback + valuation digestion” amplified the decline in convertible bonds, leading to overall performance worse than the equity market; (3) from March 2 to March 31, geopolitical risk in March further escalated. The “fixed-income+” redemption theme unfolded; combined with the upcoming earnings-report season, the market’s overall risk appetite weakened. In a high-valuation environment, convertible bonds were relatively fragile. On March 3B纬转债’s unexpectedly strong redemption dragged down the convertible bond performance. At the end of the month, high-price and short remaining-maturity products faced clear pressure, and the convertible bond index pulled back back toward the level at the start of the year.

(I) 26Q1 market performance: the price center of gravity lowered; valuation rose first and then fell

Price center of gravity and the share of high-at-par issues declined. As of March 31, the convertible bond balance weighted average closing price was 133.48 yuan, down slightly by 0.82% compared with the end of 2025. The share of high-price convertible bonds above 150 yuan declined by 2.36pct to 20.74%; the median price in the convertible bond market was 132.50 yuan, down 0.41% compared with the end of 2025. Around the Spring Festival, the technology-theme rally combined with spring frenzy drove the equity market to rise rapidly; the par-value average peak was lifted to 109.38 yuan for convertible bonds. Then, under risk disruptions, it fell to 99.22 yuan. Overall, this is 2.24% lower than at the end of 2025. The distribution of the high-at-premium range decreased slightly. As of March 31, the share of par issues above 100 yuan fell from 53.02% at the end of 2025 by 5.45pct to 47.56%.

After breaking historical highs, convertible bond valuations fluctuated and then pulled back. In January, the equity market continued the pre–New Year’s Day enthusiasm; although it fluctuated in mid-to-late month, it remained strong overall. Convertible bond ETF shares continued to grow; major holders such as public funds increased holdings. Supported by liquidity, convertible bonds rose along with the equity market, and valuations also rose to a high level. In February, the equity market fluctuated but leaned strong. Before the Spring Festival, funds might have taken profits and adopted risk-avoidance sentiment. On the one hand, after the holiday, Shanghai real estate controls were loosened and important meetings mentioned economic development in an unexpectedly positive manner; on the other hand, calendar effects from the Spring Festival to the Two Sessions period may have further reinforced market expectations for “a strong start” and performance validation. Margin trading balance increased quickly, and the equity market overall maintained a relatively positive risk appetite. Convertible bond valuations broke through 40% before and after the Spring Festival, achieving a new historical high. In March, geopolitical risk further escalated. The “fixed-income+” redemption story unfolded; combined with the upcoming earnings-report season, the market’s overall risk appetite weakened. In a high-valuation environment, convertible bonds were relatively fragile. On March 3B纬转债’s unexpectedly strong redemption dragged down the convertible bond performance. By the end of the month, pressure on high-price and short remaining-maturity issues was evident, and the convertible bond index fell back to the level at the start of the year.

As of March 31, the hundred-yuan fitted premium rate was 32.65%, compressed by 1.41pct versus the end of 2025, and located at the 76.80th percentile since the beginning of 2025.

From the sector rotation perspective, TMT and the cyclical sectors took turns. In the first quarter, the equity market performance was relatively positive, but there were divergences across sectors. At the beginning of the year, the technology sector led during the spring frenzy, and combined with the warming of nonferrous metals, the cyclical sector was lifted; in February, during the volatile market, there may have been profit-taking behavior. During the U.S.-Iran conflict, military deployments and the unexpectedly strong PPI pushed up chemicals, and the cyclical sector continued to be strong. The high-volatility TMT sector retraced more. In March, with geopolitical risk shocks, all sectors declined broadly; sectors such as steel, coal, and building materials showed clear defensiveness.

(II) Convertible bond terms: the number of call-for-redemption triggers increases quarter-over-quarter; the probability of debt write-down increases significantly

The number of redemption triggers increased quarter-over-quarter, and 亿纬转债 experienced an unexpectedly strong redemption. Among the 43 convertible bonds scheduled for delisting in 2026, 7 were redeemed at maturity; additionally, 36 were delisted via strong redemption. In 26Q1, a total of 83 convertible bonds triggered compulsory redemption clauses. Of these, 43 announced but did not force redemption; the non-forced redemption proportion was 51.81%, up slightly by 0.34pct versus 25Q4. The number of redemption triggers increased by 7 compared with 2025Q4, while the forced redemption proportion declined slightly quarter-over-quarter. Notably, in the early-year spring frenzy rally, the underlying stocks surged broadly, and the number of convertible bonds whose underlying stock prices were above their strong-redemption trigger prices increased rapidly. In the strong-redemption issues in the first quarter, there were multiple samples with relatively short remaining terms. The average remaining term was 3.10 years, down 7.74% versus 2025. Strong redemption gradually expanded from near-maturity bonds to bonds with various remaining terms. On March 3B纬转债 had an unexpectedly strong redemption again, dragging down the convertible bond market further. Convertible bond valuations for “short remaining-maturity” bonds near maturity showed pressure. The premium rate of par-price convertible bonds above 130 yuan was significantly compressed. Near-maturity price issues also had some drag. Meanwhile, high-price convertible bonds showed notable internal layering characteristics in valuation. For some issues with stronger strong-redemption expectations, the premium rate had already been compressed to near zero; compared with that, issues with weaker expectations concentrated premium rates around 20%.

Fewer individual issues triggered down-conversion; the probability of debt write-down increased significantly. In 1Q, the convertible bond market rose first and then fell. During the market-wide pullback in March, the progress of down-conversion triggers increased rapidly. As of March 31, a total of 52 convertible bonds had cumulatively triggered at least 1 day. In the first quarter, the overall market had 61 triggers of down-conversion clauses (excluding “silent refusal”). There were 14 convertible bonds announcing proposals to down-convert. Other than 闻泰 and 瑞科 convertible bonds, all completed down-conversion within this quarter, for a total of 14 successful down-conversions (including the 万孚 and 裕兴 convertible bonds proposed in 25Q4). For 43 convertible bonds that did not announce down-conversion, there were 47 triggers in total (垒知 convertible bonds had 4 non-down-conversions, 冠宇 convertible bonds had 2). Based on the ratio of proposed down-conversion to triggered down-conversion, in 26Q1 the probability of proposing down-conversion was 22.95%, up 10.24pct year-on-year versus 25Q1, and up 13.13pct quarter-over-quarter versus 25Q4.

In a high-valuation environment, payoff yields from “down-conversion arbitrage” shrink. Although the down-conversion probability was relatively high in the first quarter, constrained by the overall high valuation of the convertible bond market and the environment of volatile downside in March, the down-conversion arbitrage yield performed weakly: for pre-announcement arbitrage based on the valuation date for expected down-conversion, average yield within T+10 days after the announcement was -0.70%, down 0.28pct quarter-over-quarter; for post-announcement arbitrage based on the proposed down-conversion valuation date, average T+10 yield after the announcement was 2.24%, down 1.18pct quarter-over-quarter.

(III) Supply-demand structure: new-issue issuance pacing slows; public funds and ETFs provide liquidity support

Convertible bond market supply weakened year-on-year; pre-announcement issuance improved. On the supply side, in 26Q1 there were 11 newly issued convertible bonds totaling 9.02B yuan, down from 13.68 billion yuan in 2025Q1 by 34.10%, and down 34.83% quarter-over-quarter versus 25Q4. The number of new issues was lower than delistings (43 at maturity and via redemption). The total pre-announced issuance size was 32.41B yuan, up 71.54% year-on-year and up 38.84% quarter-over-quarter versus 25Q4, implying further marginal improvement in pre-announcement supply.

Large-cap and high-rated convertible bond issuance remained relatively weak. By issuance structure, since 2023 there have been no new issues of large-cap convertible bonds above 10 billion yuan; only 紫金矿业 and 长沙银行 are still in the pending issuance process. By rating categories, in 2026Q1, the AA+ rated new additions included 艾为 and 尚太 convertible bonds, and the supply of high-rated convertible bonds decreased versus 25Q4.

Exit size remained not low; large-cap convertible bond exits eased. On the exit side, in 26Q1 a total of 43 convertible bonds delisted, up 59.26% year-on-year versus 25Q1. The exit balance totaled 45.25B yuan (including at maturity, redemption, repurchase, and conversion), up 8.85% year-on-year. In 26Q1, the exit balance share of convertible bonds with issuance size above 10 billion yuan was 3.17%, and exits for large-cap convertible bonds were somewhat more moderate.

Demand side: most major holders reduced their holding sizes. In 26Q1, the demand side performance for convertible bonds was relatively weak. Among the two major holders in the Shanghai and Shenzhen markets, their performance diverged. Combined holdings were 514.93B yuan, down 37.76B yuan from the end of 2025, a decline of 6.83%, with a narrower magnitude than 25Q4. The Shanghai Stock Exchange decreased by 15.69B yuan (down 6.53%); the Shenzhen Stock Exchange decreased by 228.15B yuan (down 7.31%).

Public funds increased holdings against the trend. As of the end of Q1, the combined holding value of convertible bonds by the two exchanges (Shanghai and Shenzhen) was 75.88B yuan, up 3.53 billion yuan versus the end of 2025, an increase of 1.57%. The share of convertible bond holdings was 44.31%, up 3.67pct versus the end of 2025. Overall, the increase in holdings of convertible bonds in 26Q1 was mainly driven by market hot-topic rallies. In January, the value of fund holdings increased quarter-over-quarter by +6.88%, becoming a key liquidity support for the increase in convertible bond valuation in the first quarter.

Enterprise annuities remained conservative. In 26Q1, the total holdings of enterprise annuities across the two exchanges were 12.04B yuan, down 21.11B yuan versus the end of 2025, a decline of 13.69%. The share of convertible bond holdings was 14.74%, further down 1.17pct versus the end of 2025. The size of enterprise annuities has been shrinking continuously since the second half of 2023, likely mainly due to annuities’ stronger demand to control drawdowns in investment portfolios or to prioritize higher returns. In 26Q1, holdings may have further decreased due to taking profits.

Insurance institutions reduced holdings further modestly. In 26Q1, the holdings of corporate insurance funds across the two exchanges totaled 7.04B yuan, down 839.9M yuan versus the end of 2025, a decline of 25.00%. The share of convertible bond holdings was 4.10%, further down 0.99pct versus the end of 2025. Overall, insurance institutions increased the slope of selling convertible bonds in 25Q4 and 26Q1; their allocation enthusiasm was relatively weaker.

Convertible bond ETFs increased holdings again; passive investment demand was relatively positive. Compared with the continued decline in ETF shares in the second half of 2025, in 26Q1 convertible bond ETFs performed relatively positively, mainly driven by the strong performance of convertible bonds and the equity market. As of March 31, the combined shares of Boshi CSI Convertible Bonds and Convertible Bonds Exchangeable ETF and Haitong’s SSE Investment Grade Convertible Bonds ETF increased by 83,990,000 shares versus the end of 2025, an increase of 18.62%. The timing when share prices rose matched closely the pace of the compression of the convertible bond market’s hundred-yuan premium rate. Institutional share increases may be an important factor driving the increase in valuation. From ETF net subscriptions/redemptions performance: Boshi ETF had net subscriptions of 61,050,000 shares in Q1, up 16.09%; Haitong ETF had net subscriptions of 22,940.00 million shares, up 32.00%. Differences in how positive the funds’ sentiment was may be mainly due to different preferences—funds may have concentrated more in high-rated quality targets. From another angle, in Q1 the market’s stance on convertible bond allocation shifted from watching in 25Q4 to being proactive.

II

Stage recap: frenzy — consolidation — pullback

(I) Frenzy: spring frenzy + theme catalyst; equity market opens strong (0105-0128)

From January 5 to January 28, the equity market benefited from spring frenzy combined with technology & cycle dual-theme catalysts, delivering strong performance. Margin trading balance expanded faster, and Northbound funds also had consecutive net inflows. Driven by aggressive buying and rising sentiment, convertible bonds quickly rallied. Over the same period, the convertible bond index rose 8.45%. The par-value average increased by 4.62% to 106.19 yuan. Convertible bonds showed an independent trading pattern; market valuation rose sharply by 4.09pct to 38.14% compared with the end of 2025.

In January, the equity market overall continued strong. The main lines of January focused on technology and cycle sectors. Overall, they continued the pre–New Year’s Day warmth. Two key players, TSMC and Tencent, turned toward positive action in AI commercialization, accelerating the rollout of AI commercialization. The demand-side upturn compressed existing semiconductor capacity; the price increase trend transmitted from storage and wafers to the industrial chain, with relevant links continuing to heat up. In the cyclical sector, the drivers mainly came from nonferrous metals. With gold’s continued warming driven by external uncertainty disturbances plus the dollar’s weakness, many categories including silver also surged strongly.

At the start of the year, convertible bonds rushed to position; the spring frenzy arrived earlier than in previous years. Due to the small-cap outperformance in January, there was disturbance from style switching toward large caps and preferences of new entrants, but valuations still had some support and volatility remained at a high level. By type, the valuation of debt-tilted convertible bonds rose further, with some spillover into equity-tilted and balanced types, though the magnitude was relatively smaller. The valuation increase for high-premium issues and small-cap convertible bonds was relatively more significant. January is already a key window for convertible bonds to “rush to build positions.” At the end of 2025, institutions reduced holdings more on a relative basis, which increased the intensity of this year’s position-building. The needed allocation gap had to meet the somewhat earlier spring frenzy in equities, and the intensified “FOMO” sentiment became the main reason for the rapid valuation upswing in the convertible bond market this round.

(II) Consolidation: convertible bond market first suppressed then recovered; high valuations shift toward digestion (0129-0227)

From January 29 to February 27, convertible bonds and underlying stocks as a whole continued to be relatively strong. The Wind All A index rose 1.15%, and the par-value average rose 3.01% from the end of February to 109.38 yuan, while the convertible bond index fell slightly by 1.55%. Convertible bond funds rushed to build positions, creating historical valuation highs around the Spring Festival. During the end-of-month pullback, “par-value decline + valuation digestion” amplified the decline in convertible bonds. Overall performance lagged the equity market, and as a result, the hundred-yuan fitted premium rate only increased slightly by 0.98pct to 39.12%.

Equity market heat in February continued; overall it was first suppressed then recovered. At the end of January, Iran announced it entered a state of emergency, and external disturbances gradually intensified. Earnings previews were concentrated and disclosed; the market shifted from emotion + valuation to performance validation, and the pullback became obvious in stages. In addition, convertible bonds in popular sectors may have taken profits. The pullback in elastic sectors that public funds had significantly increased allocation in Q4 was stronger. Combined with the fact that, under high valuation volatility, equity-tilted products were relatively fragile, this also weighed on the convertible bond market in early February. Before the February Spring Festival, funds may have taken profits and adopted risk-avoidance sentiment. There was a stage-wise trading shift from technology to risk-avoidance sectors. On the one hand, after the holiday, Shanghai real estate controls were loosened, and important meetings mentioned economic development more than expected. On the other hand, calendar effects from the Spring Festival through the Two Sessions period may have further reinforced market expectations for “a strong start” and performance validation. Margin trading balance increased quickly, and the equity market overall maintained a relatively positive risk appetite, leading to strong market volatility.

Convertible bond valuations gradually shifted toward digestion; sentiment cooled and moved toward neutrality. As of the close on February 27, 2026, the hundred-yuan par-fitting implied transfer premium rate was 39.12%, up 2.01pct compared with late January, but down 1.93pct from 41.05% before the Spring Festival. The strong position-building force at the start of the year slowed somewhat after the Spring Festival; the ETF share growth rate dropped notably. From the calendar effect perspective, in April and May convertible bonds likely faced structural pressure; after the holiday, profit-taking demand in convertible bonds was strengthened, and valuation digestion became the main theme. The most prominent drop after the holiday came from high-premium convertible bonds valuation falling. From January 29 to February 27, the premium rate for convertible bond issues with par value between 110 and 130 was compressed by 0.59pct. At the end of February, convertible bonds and the equity market showed a slight divergence; the independent retracement on the 26th to 27th was mainly driven by cooling sentiment and valuation compression shocks.

(III) Pullback: geopolitical conflicts continue; unexpectedly strong redemption drags performance (0302-0331)

From March 2 to March 31, the convertible bond and equity markets both pulled back. The Wind All A index fell 8.73%, the par-value average dropped 9.29% to 99.22 yuan, and the convertible bond index fell 7.41%, underperforming the underlying stock index. On the one hand, as April’s earnings disclosure period approached, the equity market’s seasonal weaker window opened; convertible bond allocation funds shifted toward taking profits. “Fixed-income+” moving toward net redemptions and ETF declines both confirmed that earlier capital support was gradually weakening. On the other hand, affected by 亿纬转债’s unexpectedly strong redemption, market pricing of strong-redemption risk suppressed the performance of some issues; overall convertible bond valuation compressed sharply by 6.47pct to 32.65%.

Theme-driven frenzy was significant, and the market continued to tighten risk appetite. On February 28, the U.S. and Israel launched strikes on Iran, escalating the conflict again. In early March, the equity market’s main trading line focused on geopolitical conflicts and the Two Sessions. Because the U.S.’s military deployments and the unexpectedly strong PPI had already pushed up chemicals earlier, in March the digestion of prior gains and the weakening of market risk appetite highlighted the pullback in the chemicals sector. With the April earnings disclosure period approaching, the market continued the trend of tighter risk appetite. Combined with ongoing overseas risk events, expectations for “Trump TACO” repeatedly shifted. After the SSE Composite Index briefly returned to the 3800 point level, it then moved in a range, with a clear lack of a trading main line. For convertible bonds, because valuations had already been compressed to a stage low point in advance, they showed some resilience during the pullback; in the pullback window from March 18 to 23, the decline was smaller than that of the equity market.

Convertible bond funds may have shifted toward taking profits; unexpectedly strong redemption dragged performance. After the Two Sessions policies were implemented in early March, the spring rally gradually entered its final stage, and the equity market’s volatility turned downward. In a high-valuation environment, convertible bonds were relatively fragile. The valuations of newly issued issues in the first half of March fell clearly, but they were still at extremely high levels in historical terms. In addition, the changes in net subscriptions/redemptions strength of “fixed-income+” funds and the net subscription/redemption share changes of convertible bond ETFs essentially corroborated the reason for the valuation pullback. Convertible bonds shifted from rushing to build positions before the Spring Festival to being dominated by profit-taking demand. On March 3B纬转债’s unexpectedly strong redemption again dragged down convertible bond performance; the convertible bond index fell back to the level at the start of the year. Due to the impact of the “short remaining-maturity” convertible bonds rapidly adjusting time value driven by strong-redemption expectations, valuations of “short remaining-maturity” convertible bonds near maturity showed pressure. The premium rates of par convertible bonds above 130 yuan were significantly compressed, and near-maturity price issues also faced some drag. Meanwhile, high-price convertible bonds displayed clear internal valuation layering. For some issues with strong redemption expectations, the premium rate had already been compressed to around zero.

III

Risk warning

The degree of economic recovery underperforms expectations, external markets’ disturbances exceed expectations, adjustments to monetary policy exceed expectations, etc.

For the detailed content, please refer to the report released by Huachuang Securities Research Institute on April 5, titled 《2026Q1 convertible bond recap: spring frenzy and external disturbances take turns; valuation rallies then pulls back》

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