CITIC Securities Research
<img src="https://imageproxy.pbkrs.com/https://inews.gtimg.com/om_bt/Ouf0bood6OfekQQy8Em5ufrKbeinwZTYHrBS_Xo8shsTAAA/641?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://inews.gtimg.com/om_bt/Ouf0bood6OfekQQy8Em5ufrKbeinwZTYHrBS_Xo8shsTAAA/641"/>
Written by: Zeng Yu, Zhou Bowen
Overall, the situation in Iran has limited impact on the domestic environment, and it is also believed that the adverse effects of the war conflict in April on the convertible bond market are expected to diminish marginally. The convertible bond assets have bid farewell to the high valuation state of February and March, and the allocation value has begun to emerge. It is recommended to maintain a barbell strategy, focusing on stable individual bonds in the financial and utility sectors on one hand, and on the other hand, paying attention to growth industries such as non-ferrous metals and AI that have undergone significant adjustments earlier. Meanwhile, the valuation of newly issued convertible bonds has also significantly declined, and the recent pace of new convertible bond issuance has been good, suggesting continued attention to investment opportunities in the early stages of new bond listings.
<img src="https://imageproxy.pbkrs.com/https://inews.gtimg.com/om_bt/OWpUorXM509MTIsgNezUTfQTHFowmYszgTF1p8S2pbslkAA/641?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://inews.gtimg.com/om_bt/OWpUorXM509MTIsgNezUTfQTHFowmYszgTF1p8S2pbslkAA/641"/>
March Convertible Bond Market Review: Significant adjustments in the convertible bond index and valuation decline. The CSI Convertible Bond Index fell by -7.41% in March. In March, influenced by the situation in Iran, equities experienced significant adjustments, leading convertible bonds to decline alongside equities, while valuation compression resulted in the convertible bond index's decline being roughly equivalent to that of equities. The stock market in March exhibited defensive characteristics, with large-cap value styles significantly outperforming, while mid-cap growth and small-cap growth experienced larger declines. In terms of convertible bonds, high-priced, small-cap, and low-rated convertible bonds saw the largest adjustments; by industry, utility and financial convertible bonds performed relatively well, while consumer discretionary, industrial, and information technology convertible bonds experienced larger adjustments.
April Convertible Bond Market Outlook: Allocation value begins to emerge, and the market is expected to stabilize and build a bottom, suggesting a gradual increase in positions. After the high valuations of February and March, the current valuation of the convertible bond market has significantly declined. We estimate that the underlying return rate of current convertible bond assets is about 3%, and the allocation value has begun to emerge. We believe that the market has adequately priced in the long-term nature of the situation in Iran, and subsequent negative news regarding the war may gradually become less impactful, while positive news is expected to be responded to more actively. At this time, there may be significant profit potential in positioning for a short-term resolution of the war and marginal easing. Meanwhile, we believe that the most severe phase of the war's impact on global liquidity is likely over, and future asset pricing will rely more on the characteristics of the assets themselves, with the impact of liquidity shocks gradually weakening. It is recommended to maintain a barbell strategy, focusing on stable individual bonds in the financial and utility sectors on one hand, and on the other hand, paying attention to growth industries such as non-ferrous metals and AI that have undergone significant adjustments earlier. Additionally, the valuation of newly issued convertible bonds has also significantly declined, and the recent pace of new convertible bond issuance has been good, suggesting continued attention to investment opportunities in the early stages of new bond listings.
<img src="https://imageproxy.pbkrs.com/https://inews.gtimg.com/om_bt/OsJyUdeSgyamrmzToc5KgEX1gw9GpXvyBjMrkh599dwVkAA/641?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://inews.gtimg.com/om_bt/OsJyUdeSgyamrmzToc5KgEX1gw9GpXvyBjMrkh599dwVkAA/641"/>
I. March Convertible Bond Market Review: Significant Adjustment in Convertible Bond Index, Valuation Decline
The convertible bond market in March experienced significant adjustments: the China Securities Convertible Bond Index had a fluctuation of -7.41%, the Shanghai Composite Index had a fluctuation of -6.51%, and the Wind Convertible Bond Weighted Index had a fluctuation of -6.33%. In March, influenced by the situation in Iran, the equity market saw substantial adjustments, leading convertible bonds to decline alongside equities, while valuation compression resulted in the convertible bond index's decline being roughly equivalent to that of equities.
In terms of equity style, according to the Guozheng Index, the stock market in March exhibited defensive characteristics, with large-cap value style significantly leading, showing a fluctuation of -1.57%, while mid-cap growth and small-cap growth experienced larger declines, both dropping over 10%. Regarding convertible bonds, by price level, high-priced convertible bonds saw the largest decline in March (-14.72%), with a significant compression in premium rates, while low-priced convertible bonds had limited declines (-3.29%); by scale, small-cap convertible bonds also experienced significant declines, with a fluctuation of -8.69% in March; by rating, AAA-rated convertible bonds demonstrated defensive characteristics, with a fluctuation of only -3.8%, outperforming other ratings, while AA-rated and below convertible bonds had a fluctuation of -8.82% in March; by industry, utility and financial convertible bonds performed relatively well, while consumer discretionary, industrial, and information technology convertible bonds saw larger adjustments.
<img src="https://imageproxy.pbkrs.com/https://inews.gtimg.com/om_bt/OtWGiWgFB6SGuXDcM21qBbR7TDeII1oa8fAw3azoVdYBcAA/641?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://inews.gtimg.com/om_bt/OtWGiWgFB6SGuXDcM21qBbR7TDeII1oa8fAw3azoVdYBcAA/641"/>
In terms of valuation, convertible bond valuations have retreated from high levels. The average implied volatility of convertible bonds in March fell from 51.3% at the end of the previous month to 47.6% at the end of March, and the conversion premium rate also significantly compressed. Observing by price level, the premium rate of equity-like individual bonds has retreated most noticeably, with the conversion premium rate of convertible bonds priced at 140 yuan now falling to the 65th percentile level since 2022, influenced by both market adjustments and a significant increase in the number of strong redemption individual bonds.
<img src="https://imageproxy.pbkrs.com/https://inews.gtimg.com/om_bt/O0VQfTUl8RNsA7isM7PYjBxx-5rEsFyDs4BvB4CSHjn3UAA/641?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://inews.gtimg.com/om_bt/O0VQfTUl8RNsA7isM7PYjBxx-5rEsFyDs4BvB4CSHjn3UAA/641"/>
The valuation adjustment of newly issued convertible bonds is even more pronounced. Previously, the valuation of the convertible bond market was at historical highs, with newly issued convertible bonds seeing even higher valuations. In mid-February, the average implied volatility of newly issued convertible bonds was about 30 percentage points higher than the average implied volatility of all convertible bonds, while this premium rate has now dropped to 14 percentage points. Currently, the valuation premium of newly issued convertible bonds has significantly returned.
<img src="https://imageproxy.pbkrs.com/https://inews.gtimg.com/om_bt/OP8-_S2gACCGCcc6LqbPzTFM5PzMuCmlBaUWy1YKHdcz4AA/641?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://inews.gtimg.com/om_bt/OP8-_S2gACCGCcc6LqbPzTFM5PzMuCmlBaUWy1YKHdcz4AA/641"/>
II. April Convertible Bond Market Outlook: Initial Signs of Allocation Value, Market Expected to Stabilize and Build a Bottom, Suggest Gradually Increasing Positions
After experiencing high valuations in February and March, the valuation of the convertible bond market has significantly declined. As of March 31, the median price of all convertible bonds is 132.6 yuan, and we estimate that the current underlying return rate of convertible bond assets is about 3%, with the value of allocation beginning to emerge.
<img src="https://imageproxy.pbkrs.com/https://inews.gtimg.com/om_bt/OXLCBEvy04BgQxqa4sUtd8TjtBfnRXSnmJjgwsapBxAakAA/641?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://inews.gtimg.com/om_bt/OXLCBEvy04BgQxqa4sUtd8TjtBfnRXSnmJjgwsapBxAakAA/641"/>
In the severe adjustment of the convertible bond market in March, the valuation compression of equity-like individual bonds was the most pronounced, influenced by the decline in the equity market and the fact that many issuers chose to redeem early due to high valuations, leading to a rapid compression of premium rates.
<img src="https://imageproxy.pbkrs.com/https://inews.gtimg.com/om_bt/ONIExyK7Zf0Yq95Cm3tl-0ye5clftUedU7uYnnTuq5TacAA/641?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://inews.gtimg.com/om_bt/ONIExyK7Zf0Yq95Cm3tl-0ye5clftUedU7uYnnTuq5TacAA/641"/>
In the short term, the situation in Iran remains a focal point, but we believe that its adverse impact on the convertible bond market is expected to gradually diminish; conversely, if the situation takes a positive turn, the uplifting effect on the convertible bond market may be quite significant.
Looking back at the Iranian situation since the end of February, in March, global assets accelerated pricing towards a prolonged war and the potential damage to global total demand under high inflation, compounded by short-term liquidity shocks, leading to certain adjustments in global stock markets, gold, and non-ferrous metals. In the early stages of the month, the market's pricing for a prolonged war was insufficient, especially regarding the long-term blockade risk of the Strait of Hormuz—which could lead to a decline in global total demand. During this phase, there was not a significant expected difference for trades anticipating a short war; on the contrary, there was a considerable expected difference for trades anticipating a prolonged war, but for investors only taking long positions, it was difficult to realize this direction of trading. Since mid-March, the market has accelerated pricing towards a prolonged and expanded war, with increasing concerns about the decline in global total demand due to the long-term blockade of the Strait of Hormuz, especially as Iran has shown greater resilience in the conflict. Currently, we believe the market has adequately priced in the long-term situation, and subsequent negative news regarding the war may gradually become less impactful, while positive news is expected to elicit a more active response. At this time, positioning for a short war and marginal easing may present significant profit opportunities.
Meanwhile, in terms of liquidity, we also believe there is marginal improvement. In March, the outbreak of war led to a downward adjustment of most major asset classes due to global liquidity, with gold and oil showing a clear negative correlation; as tensions increased—oil surged—gold fell, and vice versa. However, since last Friday, the negative correlation between gold and oil has significantly weakened, with both showing synchronized increases. We believe this situation indicates that the most severe phase of the war's impact on global liquidity is likely over, and future asset pricing will rely more on the characteristics of the assets themselves, with the impact of liquidity shocks gradually diminishing
Currently, the price center of convertible bonds is similar to that of November and December last year, but we believe that the direction of institutional behavior may differ. At that time, institutional behavior was more likely to cluster upwards; however, currently, nearly 46% of the convertible bond balance is concentrated in public funds, and the liability stability of public fund products is weaker than that of corporate annuities and insurance institutions. According to data from the Shanghai Stock Exchange, in March, the total scale decreased due to a large number of forced redemptions in the convertible bond market, and the balance of convertible bonds held by various investors mostly followed the decline in total scale. However, in terms of holding proportions, the convertible bond chips have further concentrated in public funds. Based on the current structure of convertible bond investors, we suggest that in April, it is necessary to continuously assess the stability of public fixed income + product liabilities based on market performance and gradually increase positions.
<img src="https://imageproxy.pbkrs.com/https://inews.gtimg.com/om_bt/OV_UG1Z5FdPQ-2_2C4tolhDH0PDfmzmNLxKHxPhrDHqdMAA/641?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://inews.gtimg.com/om_bt/OV_UG1Z5FdPQ-2_2C4tolhDH0PDfmzmNLxKHxPhrDHqdMAA/641"/>
Overall, the situation in Iran has limited impact on the domestic environment, and we also believe that the adverse effects of war conflicts on the convertible bond market in April are expected to decrease marginally. The convertible bond assets have bid farewell to the high valuation state of February and March, and the allocation value has begun to emerge. We recommend maintaining a barbell strategy, focusing on stable individual bonds in the financial and utility sectors on one hand, and on the other hand, paying attention to growth industries such as non-ferrous metals and AI that have undergone significant adjustments. In addition, the valuation of newly issued convertible bonds has also significantly declined, and the recent pace of new convertible bond issuance has been good, so we suggest continuously monitoring investment opportunities in the early stages of new bond listings.
<img src="https://imageproxy.pbkrs.com/https://inews.gtimg.com/om_bt/OnhvQbuNUDRx5fT7Cp12OhFI0eBUToyWAXr9NjBKDw060AA/641?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://inews.gtimg.com/om_bt/OnhvQbuNUDRx5fT7Cp12OhFI0eBUToyWAXr9NjBKDw060AA/641"/>
Equity market volatility risk. The price of convertible bonds has a high correlation with the underlying stocks. If the equity market experiences a significant adjustment, 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 further decreases, 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 disturbance in the bond market, it may affect 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.
Credit and delisting risk. Some individual bonds are gradually approaching maturity. If they ultimately fail to repay their debts, 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 needs to comprehensively consider various factors of the issuer, thus there is 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 influenced by regulatory policies in terms of 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 three years, and any changes to such regulatory policies may cause short-term disturbances in the convertible bond market.
<img src="https://imageproxy.pbkrs.com/https://inews.gtimg.com/om_bt/ODi_XUGAc36pEO9FXfLzH5CT0Y2KDg1mygClej6z5h-YwAA/641?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://inews.gtimg.com/om_bt/ODi_XUGAc36pEO9FXfLzH5CT0Y2KDg1mygClej6z5h-YwAA/641"/>
Zeng Yu: Chief Analyst of Fixed Income. Master's supervisor in finance at Sichuan University. 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 &#34;New Fortune,&#34; &#34;Crystal Ball,&#34; and &#34;Most Popular Sell-Side Analyst in Insurance Asset Management,&#34; including being ranked first in fixed income by &#34;New Fortune&#34; in 2016. He has deep expertise in the fixed income research field, 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 CSC in 2018. Since 2022, he has been engaged in fixed income research, with his main research focus on convertible bonds, government bond futures, and fixed income + products.

Securities Research Report Title: &#34;Convertible Bonds: Initial Signs of Allocation Value, Market Expected to Stabilize and Build a Bottom, Recommend Gradually Increasing Positions—April Convertible Bond Market Outlook and Portfolio Recommendations&#34;
External Release Date: April 1, 2026
Report Issuing Institution: CSC
Report Analysts:
Zeng Yu SAC Number: S1440512070011
Zhou Bowen SAC Number: S1440520100001

513750

511380

512880

601066

511180

159842

06066

512000

CITIC Securities Research released the April convertible bond market outlook, believing that the situation in Iran has limited impact on the domestic market, and the allocation value of the convertible bond market is beginning to emerge. It is recommended to maintain a barbell strategy, focusing on stable individual bonds in the financial and utility sectors, as well as growth industries such as non-ferrous metals and AI. The review of the March convertible bond market shows that the decline in the convertible bond index is comparable to that of equities, with a valuation retreat. It is expected that the market will fluctuate and build a bottom in April, and it is recommended to gradually increase positions and pay attention to investment opportunities in the early stages of new bond listings

CSC | April Convertible Bond Market Outlook and Portfolio Recommendations