Convertible bond investors relax protections amid AI boom

The AI gold rush has reached a corner of finance that most people never think about: convertible bonds. Investors in this hybrid debt market are quietly surrendering protections they’ve held dear for decades, all for the privilege of riding the AI wave. Global zero-coupon convertible bond issuance hit $72 billion year-to-date as of late August, putting 2026 on track to surpass the previous full-year record of $73 billion set just last year. US convertible issuance alone reached $57 billion in the first half of 2026, the highest figure ever recorded for that period. The terms are getting aggressive Zero-coupon convertibles are exactly what they sound like: bonds that pay no interest. The investor gets nothing while they wait, banking entirely on the conversion option, the right to swap debt for equity at a predetermined price, to make the trade worthwhile. Conversion premiums, the markup above a company’s current stock price at which bondholders can convert to shares, have climbed to eye-watering levels. Cloudflare’s August 2026 notes carried a 60% premium. That means the stock needs to rally more than 60% from the issuance price before conversion starts to pay off. The roster of is...