Global issuance of zero-interest convertible bonds is on track for a record year, as AI companies attract eager investors willing to forgo coupon payments in exchange for exposure to the fast-growing sector.
Companies have issued $72bn of zero-coupon convertibles so far this year, according to data group Dealogic, putting issuance on course to overtake the previous record of $73bn set for the whole of 2025.
AI-linked groups have led the charge on such debt due to the high volatility of share prices in the sector, which has suffered sharp but temporary falls during its blistering years-long rally.
Convertible bonds in effect contain a call option that gives investors the right to exchange their debt for shares at a certain price, an option that increases in value as stock volatility rises. Many investors have been willing to give up interest payments in the hope of gaining cheap access to shares in the future.
“The companies coming to this market now are far more volatile than the ones they replaced,” said Nicolas Crémieux, head of convertible bonds at Mirabaud Asset Management. “If you’re selling something more valuable, you can [offer] less for it.”
Such debt has risen to prominence in recent years in part due to Michael Saylor’s bitcoin-hoarding company Strategy, which has issued billions of dollars of these bonds. Among the AI-related issuers of the debt this year are ON Semiconductor, which issued $1.3bn worth of notes at zero per cent in May, and optical networking and software group Ciena Corp, which sold almost $2.9bn worth with no interest payments in June.
The desire to issue such debt has grown as borrowing costs around the world have surged, with yields on 10-year US Treasuries climbing from 4.15 per cent to 4.66 per cent this year.
Issuers were trying to cut coupon costs in a higher interest rate environment, said Dorian Carrell, head of multi-asset income and co-manager of convertibles at Schroders.
“Rates now look persistently higher than a lot of companies expected in 2020-2021. There’s a move to try to be more innovative and think about minimising financing costs, minimising dilution and protecting credit rating,” he said. “The incentive is higher to go for a zero coupon.”
Overall issuance of convertible bonds has soared this year as a way of helping raise the hundreds of billions of dollars that AI groups have been spending on infrastructure, providing a valuable financing route for companies with huge costs but little cash flow.
A little over $113bn of convertible bonds had been issued so far this year as of the end of last week in the US — the main market for such deals — the highest level over comparable periods and approaching the $120bn all-time high for the whole of 2025, driven by AI demand, according to Barclays Research.
Meanwhile, buoyant investor demand has pushed some coupons down to zero. They were typically higher between 2022 and 2024 in a more “investor-friendly window”, but the “weight of money chasing AI-linked paper closed it”, Mirabaud’s Crémieux said.
Zero-coupon bonds this year account for about 41 per cent of all convertible issuance, according to Dealogic.
“US convertibles are on pace for record issuance, including zero [per cent coupons], in good part driven by issuance from attractive areas of the market such as AI-exposed segments,” said Venu Krishna, head of US equity strategy at Barclays.
However, despite strong investor appetite for such debt in recent years, rising bond yields this year have led many investors to demand greater compensation for buying a bond that pays no interest. This has pushed issuers intent on striking deals at zero per cent to reduce the share price at which the debt can convert to equity, expressed as a premium over the price when the bond was issued.
To protect current shareholders, the company can buy a so-called capped call from a bank, such that when the share price rises above the conversion price — up to an agreed limit or cap — the bank pays the difference in cash or shares, offsetting equity dilution. Capped calls are bought using the proceeds of the bond deal, increasing the upfront costs of issuance.
“The only way you can [issue at zero coupon] is to minimise your premium when you print the bond, and the only way to protect your shareholders therefore is to use the capped call,” said Carrell at Schroders. “It reduces the coupon cost, but it’s not costless.”
“Without these structures, the coupons would be moving up to the 2 per cent area. That starts to get more expensive for an issuer,” Carrell said.
In August, internet security and infrastructure company Cloudflare issued $2.5bn of convertible notes with a zero per cent coupon and a conversion price set at 60 per cent above the shares’ closing price the day before the bond was issued. It came with a capped call up to 175 per cent above the issue price.
In April, Amkor Technology, a semiconductor packaging and testing company, sold $1.15bn of converts with no coupon, a conversion premium of 52.5 per cent and a capped call at a 100 per cent premium to the issue price.
Some $68bn worth of deals have included these anti-dilution measures so far in 2026, the largest amount on record.
“[These structures] hold as long as volatility holds. Investors are giving up the coupon because they’re being paid in optionality instead,” Crémieux added. If single stock volatility collapses, “they’ll have bought something they didn’t receive, and that’s when terms turn”.
