- New issue activity in Q2 totaled $38.6 billion, bringing total issuance volume for the first half of 2025 to $53.7 billion, tracking 22% above 2024 issuance levels. Q2 was the most active quarter by issuance volume and number of deals in the last four years.
- Issuance activity rebounded strongly in Q2 following a quiet first quarter, as equity markets staged a remarkable recovery from early-April lows with the softening of global trade tensions and a steadying interest rate outlook.
- The second quarter was characterized by a sharp increase in technology sector issuance. While refinancing activity continues to be a prevalent theme in the market, last quarter saw an uptick in opportunistic capital raises too as issuers sought to strengthen their balance sheet with flexible, low-cost capital.
- Issuers achieved extremely favorable pricing terms, with the lowest average coupon and highest average conversion premium for any quarter in the last four years. One-third of all deals priced with a zero coupon, a remarkable achievement given current interest rates.
- The convertible secondary market enjoyed a strong quarter with positive returns for both outright and hedged investors, as the asset class remains well bid given the combination of tight credit spreads and heightened volatility in the quarter.
While Q2 2025 saw issuance from a variety of sectors, the quarter saw a significant rebound in technology convertible deals, which has traditionally been the predominant sector for convertible market issuance. Healthcare issuance was muted last quarter with only one deal, but we expect to see this rebound as the year progresses.
Terms: The new issue environment in Q2 was extremely robust, as the confluence of tight credit spreads and elevated volatility allowed issuers to achieve historically attractive pricing terms despite relatively high benchmark rates. The average coupon of 1.77% in Q2 is the lowest for any quarter since 2021, when rates were near-zero, and the average conversion premium is at its highest level in four years. One-third of all deals in the quarter priced with a zero coupon, a remarkable achievement given interest rates in the period were near 4%.
Average Convertible Debt New Issue Coupon Rate and Conversion Premium 2022 – 2025
| Sector | 2022 | 2023 | 2024 | Q1 2025 | Q2 2025 |
|---|---|---|---|---|---|
|
All Deals |
3.45% / 29% |
3.50% / 30% |
2.62% / 31% |
2.16% / 31% |
1.77% / 33% |
|
Technology Sector |
2.68% / 31% |
2.80% / 27% |
1.86% / 34% |
2.04% / 31% |
1.37% / 37% |
|
Healthcare Sector |
3.08% / 30% |
2.56% / 30% |
2.69% / 31% |
2.16% / 33% |
0.75% / 33% |
|
Average 5y UST |
3.00% |
4.06% |
4.13% |
4.25% |
3.99% |
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 that priced at fair value with no “cheapness” and anything greater than 100 represents some theoretical new issue concession. The average cheapness in Q1 was 1.7 pts, below the trailing 12-month average of 2.6 pts, which represents an attractive valuation for new issue deals. While the unusually high new issue concession in April is due to a small sample size of deals that month, there was significant demand for new issuance through May and June as supply in the prior quarter was relatively muted. This dynamic resulted in issuers generally achieving terms at very attractive theoretical valuations.
Pricing Results vs. Price Talk: Pricing outcomes for issuers in Q2 were relatively balanced, with 48% of new issues pricing better than the midpoint of the marketing range, while 21% of deals priced worse than the midpoint. Notably, two-thirds of technology issuance in the quarter priced better than the midpoint of the marketing range, while only one-third of deals in all other sectors priced better than the midpoint. This bifurcation is indicative of the pent-up demand for technology issuance and suggests the buyside was more discerning in their pricing views of new issuances from non-traditional sectors. Additionally, nearly 40% of all deals in Q2 priced on an overnight basis, as certain issuers sought to minimize market risk in the current environment. This is a continuation of a trend that started last quarter, and we would expect this to continue through the second half of the year.
Secondary Trading: Average returns for convertible investors rebounded strongly in Q2 following a mixed start to the year. We estimate that average Q2 returns for outright funds topped 10%, mirroring the trend in broader equity markets with the S&P500 up 11% on the quarter. We estimate average returns for convertible arbitrage funds were in the low-single digits, as the secondary market richened on a stock-price neutral basis given tighter credit spreads and high volatility.
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