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For Swiss fixed income investors, 2025 has brought little reason for optimism. Core bond segments - such as the »Swiss Bond Index AAA-BBB« and the »Bloomberg Global Aggregate« (hedged in Swiss francs) - have delivered near-zero returns. The temporary comeback of fixed income over the past two years already seems to be fading, given the current interest rate environment. With the yield to maturity of the SBI AAA-BBB Index barely declining, return potential remains constrained by persistently low yields.

«Ten-year Swiss government bonds could reach 1.00 percent by mid-2026.»

Further price declines are likely in the coming months, as Swiss bond yields are expected to rise again. Ten-year Swiss government bonds could reach 1.00 percent by mid-2026. The main driver is the strengthening eurozone economy, which is expected to spill over into Switzerland and likely prevent the Swiss national Bank from making further rate cuts.

An Additional Layer of Diversification

By contrast, satellite allocations such as convertible bonds have once again delivered excess returns with low volatility this year. The broad global convertible bond market gained 9.75 percent through mid-August, with the defensive investment-grade segment even up 10.74 percent – all hedged into Swiss francs. April’s brief market setback proved both shallow and short-lived, confirming the asset class’s ability to deliver strong equity participation with reduced volatility.

Convertible bonds also stand out due to their low correlation and diversification benefits relative to traditional fixed income. On a sector level, technology dominates while financials play only a minor role – offering bond investors an additional layer of diversification.

Wave of new issuances from China

Equity investors, meanwhile, welcome the absence of the Magnificent 7 in the convertible universe compared to the recent Terrific 10 wave of new issuances from China. Companies such as Alibaba Health, BYD (through a JPM exchangeable bond), and Baidu have expanded the investment universe, offering structural advantages like investment-grade ratings, exchangeable formats, short maturities, and put options.

«Convertible bonds look poised to benefit further in the months ahead.»

Another performance driver this year has been the high turnover within the asset class: many profitable conversions combined with a healthy pipeline of new deals at balanced terms and attractive valuations. Key parameters such as equity sensitivity (delta) remain in the low 50s, well within long-term averages despite equity market highs. Combined with a relatively high bond floor, this offers meaningful downside protection while preserving equity upside potential.

All in all, convertible bonds look poised to benefit further in the months ahead: low duration, moderate equity sensitivity, a steady stream of new opportunities – including from the AI space – and renewed special situations and M&A activity should continue to provide tailwinds for this hybrid asset class.

Oliver Gasser, CEO and Head of Portfolio Management, Bantleon Convertible Experts, Zurich.

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