--- title: "CITIC Construction Investment: Convertible bonds return to neutral, focus on marginal changes in the war situation to find expected differences" type: "News" locale: "en" url: "https://longbridge.com/en/news/279858715.md" description: "CITIC Construction Investment Securities Research pointed out that the convertible bond market has returned to a neutral state, suggesting that investors pay attention to marginal changes in the war situation to seek expected differences. Recently, due to the impact of the situation in Iran, the convertible bond index fell by 5.65%. Although the valuation of convertible bonds has not yet been significantly undervalued, there is already operational space. Investors should pay attention to the trends in related sectors such as non-ferrous metals, look for suitable layout opportunities, and hold firmly" datetime: "2026-03-19T23:23:01.000Z" locales: - [zh-CN](https://longbridge.com/zh-CN/news/279858715.md) - [en](https://longbridge.com/en/news/279858715.md) - [zh-HK](https://longbridge.com/zh-HK/news/279858715.md) --- # CITIC Construction Investment: Convertible bonds return to neutral, focus on marginal changes in the war situation to find expected differences CITIC Construction Investment Securities Research Written by: Zeng Yu, Zhou Bowen Recently, the oil and gas infrastructure of relevant countries has been attacked, and the market is accelerating its pricing towards the long-term and expanded nature of the war, as well as the potential damage to global total demand. The progress of the war is difficult to predict, but for convertible bond investors, it is recommended to look for opportunities based on expected differences. On one hand, the current valuation of convertible bonds has returned to neutral; although it cannot be asserted that convertible bonds are significantly undervalued, there is already operational space. On the other hand, wait for the emergence of expected differences. When the market's pricing logic further shifts towards long-term and demand-damaged pricing, positioning for a short-term war and marginal easing of the situation may actually present significant profit opportunities. In the short term, it is advisable to refer to the performance of similar sectors such as non-ferrous metals to assist in judgment. Overall, the situation in Iran has limited impact on the domestic environment, and convertible bond assets exhibit significant price mean reversion and a long-term upward trend in indices, so finding suitable entry points for positioning and holding firmly is crucial. From March to date (as of the close on March 19, the same below), the CSI Convertible Bond Index has fallen by 5.65%, with the index dropping by 1.64% on March 19. 1. The convertible bond market has encountered significant adjustments, mainly due to previously high valuations, with the catalyst being the trend of the Iranian war expanding and becoming long-term. From March to date (as of the close on March 19, the same below), the CSI Convertible Bond Index has fallen by 5.65%, with the index dropping by 1.64% on March 19. We believe that the recent significant adjustment in the convertible bond index is mainly due to its own high valuation, which has led to a larger decline in convertible bonds in an environment of equity fluctuations. On the early morning of March 19, oil and gas infrastructure in Qatar, Saudi Arabia, and other places was attacked, raising market concerns about the long-term and expanded nature of the Iranian situation, which may accelerate the equity market's pricing of the global total demand affected by the war. 2. The convertible bond market has returned to a neutral state and should no longer be viewed with high valuation. As of the close on March 19, the median price of convertible bonds has fallen back to around 135 yuan, down about 9 yuan from over 144 yuan in mid-February. We believe that convertible bond assets have now returned to a neutral state, estimating a corresponding underlying return rate of about 2%. While it cannot yet be asserted that convertible bonds are significantly undervalued, there is already operational space. 1. In the short term, focus on marginal changes in the battlefield and look for discrepancies in expectations. Since the situation in Iran changed at the end of last month, the market initially believed that the conflict would be short-term, with trading behavior more focused on the pulse-like rise in oil prices, insufficiently pricing the risks of a prolonged war, especially the long-term blockade risk of the Strait of Hormuz—which could lead to a decline in global total demand. During this phase, the trading for a short-term war did not have a significant discrepancy in expectations; on the contrary, the trading for a prolonged war had a large discrepancy in expectations. However, for investors who only go long, trading in this direction is difficult to realize. Since mid-March, the market has gradually begun to price in a prolonged war, with increasing concerns about the long-term blockade of the Strait of Hormuz leading to a decline in global total demand, especially as Iran has shown greater resilience in the conflict. Recently, the oil and gas infrastructure of related countries has been attacked, and the market has accelerated its pricing towards a prolonged and expanded war, as well as potential damage to global total demand. The progress of the war is difficult to predict, but for convertible bond investors, it is advisable to look for discrepancies in expectations and seize opportunities. On one hand, the current valuation of convertible bonds has returned to neutral; while it cannot yet be asserted that convertible bonds are significantly undervalued, there is already operational space. On the other hand, wait for the emergence of discrepancies in expectations. When the market's pricing logic further shifts towards prolonged conflict and demand damage, positioning for a short-term war and marginal easing of the situation may instead present significant profit potential. In the short term, it is recommended to refer to the performance of similar sectors such as non-ferrous metals to assist in judgment: previously, the market priced in limited supply expansion in the non-ferrous sector while demand was rising. Recently, as the market's pricing logic has shifted towards demand damage, the related sectors have adjusted significantly. If the related sectors stabilize after pricing in the risks of demand damage, it may be appropriate to position in convertible bond assets. Overall, the situation in Iran has limited impact on the domestic environment, while convertible bond assets exhibit significant price mean reversion and a long-term upward trend in indices. Therefore, finding suitable entry points for positioning and holding firmly is crucial; the greatest bullish and bearish factors for convertible bond assets are their own cross-sectional prices. Equity market volatility risk. The price of convertible bonds has a high correlation with the underlying stocks; if the equity market experiences significant adjustments, it may lead to substantial losses in convertible bond investments Liquidity risk. On one hand, the average daily trading volume in the convertible bond market has significantly declined compared to 2022. If liquidity in the convertible bond market continues to decrease, it may adversely affect the valuation center; on the other hand, the liquidity of the convertible bond market is closely related to institutional behavior and the bond market. If there is significant disruption in the bond market, it may impact the performance of the convertible bond market through liquidity. Interest rate and credit spread volatility risk. Currently, the average bond floor value in the convertible bond market has reached a high level. If there are significant fluctuations in interest rates or credit spreads in the future, it may lead to fluctuations in the pure bond value of convertible bonds, resulting in a risk of substantial price volatility in convertible bonds. Credit and delisting risk. Some individual bonds are gradually approaching maturity. If they ultimately fail to meet their debt obligations, it may trigger credit risk; if the underlying stock corresponding to the convertible bond is delisted, the convertible bond will also be delisted, which may lead to delisting risk without public market trading. Uncertainty risk of clause exercise. For issuers, the exercise of downwards adjustment and forced redemption clauses requires a comprehensive consideration of various factors, leading to significant uncertainty. As the remaining time of the convertible bond decreases, the probability of forced redemption and downward adjustment for individual bonds does not necessarily increase. Policy/regulatory risk. Publicly offered convertible bonds, as a refinancing tool for listed companies, are significantly affected by regulatory policies regarding their valuation and liquidity. The new regulations on convertible bonds introduced in the second half of 2022 corrected unreasonable factors in the convertible bond market and promoted the long-term development of this variety. Currently, the regulatory policies for convertible bonds have not undergone significant changes for nearly four years, and any changes to such regulatory policies may cause short-term disturbances in the convertible bond market. Zeng Yu: Chief Analyst of Fixed Income. Sichuan University Master's supervisor in finance. With years of experience in real estate regulation and securities research, he has been recognized as one of the best analysts in various rankings such as "New Fortune," "Crystal Ball," and "Most Popular Sell-Side Analyst in Insurance Asset Management." In 2016, he ranked first in fixed income in "New Fortune." He has deep expertise in fixed income research, with long-term in-depth studies on debt cycles, government debt, and real estate debt, validated by multiple rounds in the market. Zhou Bowen: Bachelor's degree from Renmin University of China, Master's degree in Finance from the London School of Economics. He joined CITIC Construction Investment Securities in 2018. Since 2022, he has been engaged in fixed income research, with a primary focus on convertible bonds, treasury futures, and fixed income + products. Securities Research Report Title: "Convertible Bonds Return to Neutral, Focus on Marginal Changes in War Situations to Find Expected Differences" External Release Date: March 19, 2026 Report Issuing Institution: CITIC Construction Investment Securities Co., Ltd. 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