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Resilient Demand in Volatile Markets: Matthews South Q1 2026 Convertible Market Review

by | | Convertible, Convertible & Call Spread, Market Review

As part of our market update series, below are our key takeaways from the convertible market in the first quarter of 2026.
  • Q1 2026 issuance totaled ~$31 billion across 38 offerings, which more than doubled the Q1 2025 issuance volume of ~$15 billion. New issuance activity underscored the resilience of the convertible market amid ongoing geopolitical tension in the Middle East
  • Seven billion-dollar-plus transactions were priced during the quarter, led by Oracle’s $5.0 billion mandatory convertible offering and Nebius’ $4.4 billion dual-tranche offering. This is a strong testament to convertible investor appetite for large deals
  • New issuance activity in the healthcare sector rebounded strongly after a few muted quarters. Six healthcare transactions totaling approximately $3.0 billion were priced in Q1 2026. Matthews South advised on two highly successful transactions: Arrowhead’s $700 million offering and BridgeBio’s $633 million offering
  • Approximately one-third of the total offerings were priced overnight, helping mitigate stock price impact. Overnight pricing is a tried-and-true strategy amid heightened equity market volatility
  • Refinancing / liability management remained an overarching theme in the market, as ~60% of issuers used new money proceeds to address outstanding debt obligations
 New Issuance:  Q1 2026 saw 38 new issue convertible deals (33 vanilla convertibles + 5 mandatory convertible offerings) for a total volume of ~$31 billion. The quarter represents a significant acceleration from the $15 billion raised in Q1 2025. More recently, issuers have become increasingly selective amid a more uncertain execution backdrop, driven by rising geopolitical tensions in the Middle East and AI-related concerns. Average deal size in Q1 was approximately $800 million, above the five-year average and reflective of the trend toward larger transactions that characterized 2025. Notably, Q1 included seven billion-dollar-plus transactions, led by Oracle’s $5.0 billion mandatory convertible offering and Nebius’ $4.4 billion dual-tranche offering. Other sizable transactions included NextEra Energy ($2.3 billion), Duke Energy ($1.5 billion), PPL ($1.2 billion), AST SpaceMobile ($1.1 billion), and Compass ($1.0 billion), underscoring the market’s ability to absorb large-scale issuance.

Issuance was well distributed throughout the quarter, with strong momentum in January and a rebound in March. More broadly, new issuance activity remained resilient throughout the quarter, suggesting a healthy pipeline of issuers looking to tap the convertible market.

The quarter saw a meaningful shift in the sector composition of issuance relative to 2025. Technology continued to be the most active sector at ~$10 billion in issuance (32% of volume). However, the most notable development was the surge in the utilities space, which accounted for 22% of the quarter’s volume, up from 8% in 2025. Several large utility convertible transactions were primarily driven by the need to fund AI-related power infrastructure and grid expansion, a theme we expect to persist as the electrification buildout continues. Healthcare remained steady at around 10% of issuance, with several well-received transactions, alongside an increase in communication services issuance and a meaningful reduction in both financial and consumer cyclical issuance.

Terms:  Investor sentiment in Q1 2026 remained constructive. Average coupons widened by 15 basis points compared to 2025. Healthcare deals stood out, with an average coupon of just 0.82% and a 38% conversion premium, representing the strongest healthcare terms seen in the last four years. Technology sector coupons averaged 2.30%, above the 2025 full-year average of 1.19%. Meanwhile, the average 5-year U.S. Treasury yield in Q1 was 3.77%, slightly below the 2025 average of 3.92%.

Average Convertible Debt New Issue Coupon Rate and Conversion Premium 2022 – 2026

Sector 2022 2023 2024 2025 Q1 2026
All Deals
3.45% / 29%
3.50% / 30%
2.62% / 31%
1.92% / 33%
2.07% / 33%
Technology Sector
2.68% / 31%
2.80% / 27%
1.86% / 34%
1.19% / 32%
2.30% / 30%
Healthcare Sector
3.08% / 30%
2.56% / 30%
2.69% / 31%
1.52% / 34%
0.82% / 38%
Average 5y UST
3.00%
4.06%
4.13%
3.92%
3.77%
Pricing Results: Theoretical Value:   The graph below illustrates the theoretical values of the deals that priced over the last 12 months. A value of 100 represents a deal priced at fair value, with no “cheapness,” while anything above 100 represents a theoretical new issue concession. The average cheapness in Q1 was 1.1 pts, below the trailing 12-month average of 1.8 pts, reflecting an attractive pricing environment for issuers. New issue concessions tightened meaningfully into February, as buyside demand for convertible paper outpaced supply during a quarter of broader equity market weakness. While concession levels widened modestly in March, issuers generally continued to achieve favorable theoretical valuations, with February averaging just 0.1 pts of concession, near fair value.
Pricing Results vs. Price Talk:  Pricing outcomes in Q1 continued to favor issuers, with 61% of new issues pricing better than the midpoint of the marketing range, while only 24% of deals priced worse than the midpoint. Just one deal for approximately 3% of the total quarterly issuance priced worse than its initial marketing range. While these results were somewhat less skewed toward issuers than in the strongest periods of 2025, they remain consistent with a constructive issuance backdrop and resilient investor demand for convertible paper. Additionally, roughly one-third of all deals in Q1 priced on an overnight basis, as certain issuers continued to utilize this format to reduce market exposure during execution amid broader market volatility and headline risk.
Secondary Trading:  The convertible asset class demonstrated resilience in Q1, outperforming broader equity markets during a period of elevated volatility. The ICE BofA All U.S. Convertibles Index gained 3.72% in the quarter, compared to a 7.1% decline in the Nasdaq Composite. Convertible arbitrage performance was more muted, with the Barclay Convertible Arbitrage Index roughly flat at +0.08% through March. Overall, this performance highlights continued investor demand for convertible securities as well as the asset class’s ability to balance equity participation with downside protection in uncertain market conditions.

Personal Views: The views expressed in this report reflect our personal views.  This blog post is based on current public information that we consider reliable, but we do not represent it is accurate or complete, and it should not be relied on as such.  The information, opinions, estimates and forecasts contained herein are as of the date hereof and are subject to change without prior notification.  The large majority of reports by us are published at irregular intervals as appropriate in our judgment and ability to produce, so updates may not be made or available even when circumstances may have changed.

No Offer: This analysis is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. You must make an independent decision regarding investments or strategies mentioned on this website. Before acting on information on this website, you should consider whether it is suitable for your particular circumstances. You should not construe any of the material contained herein as business, financial, investment, hedging, trading, legal, regulatory, tax, or accounting advice. The price and value of investments referred to in this analysis and the income from them may fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur.

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