Secondary Bond Fund Shares Hit New High as Convertible Bond Supply-Demand Imbalance Intensifies

Secondary Bond Funds Post Three Consecutive Quarters of High Growth, Scale Hits New Record

According to 36Kr, CSC Financial recently published a research report providing an in-depth analysis of fixed-income-plus fund convertible bond holdings in Q1 2026. Data shows that primary bond fund shares remained largely stable in Q1 2026, while secondary bond fund shares continued their strong growth trajectory, with net asset value rising to approximately 2 trillion yuan and scale continuing to set new historical records.

Notably, since Q3 2025, secondary bond fund shares have recorded quarter-over-quarter growth exceeding 20% for three consecutive quarters. This growth trend stands out among bond fund categories, reflecting investors' sustained enthusiasm for fixed-income-plus strategies in the current market environment.

Convertible Bond Assets Shrink as Supply-Demand Imbalance Grows Acute

However, while secondary bond fund scale has been surging ahead, the convertible bond market faces an increasingly severe supply-demand imbalance. CSC Financial's research report notes that due to the overall contraction in convertible bond assets, investment amounts in convertible bonds have declined to varying degrees across all types of fixed-income-plus funds except secondary bond funds.

More critically, convertible bond positions held by fixed-income-plus funds have fallen to their lowest level since 2020. This means that on one hand, an ever-expanding pool of capital is seeking allocation opportunities, while on the other, the available convertible bond assets continue to shrink — a contradiction that is becoming increasingly sharp.

Behind this phenomenon lies a structural shift in the convertible bond market's supply side in recent years. As some convertible bonds have matured or been converted into equities, the pace of new issuance has failed to effectively fill the gap in outstanding supply, leading to an overall contraction in the convertible bond market. For fixed-income-plus funds that rely on convertible bonds as a key source of the "plus" returns, pressure on the asset side is gradually becoming apparent.

Short-Term Optimism, Medium-to-Long-Term Caution

Facing the current market landscape, CSC Financial has offered a differentiated investment strategy recommendation of "short-term optimism, long-term caution."

From a short-term perspective, the report suggests taking a positive view of convertible bond assets, with investors gradually rebuilding positions based on fluctuations around the price center. The intensifying supply-demand imbalance for convertible bonds also objectively provides a degree of scarcity premium support for quality outstanding issues.

From a medium-to-long-term perspective, however, the report cautions investors to exercise greater prudence regarding high premium rates. When convertible bond valuations remain elevated, their advantage of offering both upside potential and downside protection is weakened, and investment returns become more dependent on the performance of underlying equities. Consequently, the upward trajectory of the equity market going forward will become a key variable in determining the medium-to-long-term investment value of convertible bonds.

Outlook: Asset Allocation Landscape Faces Reshaping

The continued expansion of secondary bond fund scale and the accelerating contraction of convertible bond assets are reshaping the asset allocation landscape of fixed-income-plus funds. In the future, fund managers may be compelled to seek additional sources of "plus" returns beyond convertible bonds, with alternative strategies including direct equity investment, REITs, and derivatives likely to attract greater attention.

At the same time, supply-side changes in the convertible bond market also warrant attention at the policy level. If the pace of convertible bond issuance can be moderately accelerated, it would help alleviate the current supply-demand imbalance, provide fixed-income-plus funds with more ample allocation opportunities, and contribute to the long-term healthy development of the convertible bond market.

For investors, the current environment calls for greater emphasis on the ability to carefully select individual convertible bonds, avoiding blindly chasing prices higher, while closely monitoring macroeconomic trends and shifts in equity market sentiment.