Rising Volatility Fuels European Convertible Bond Opportunities

Investors seeking asymmetric returns in a volatile market need look no further than European convertible bonds (CBs). The recent surge in the VSTOXX volatility index—spiking to a three-year high of 47 in April 2025—has reignited demand for these hybrid instruments, which thrive in uncertainty. With refinancing waves from pandemic-era debt maturing and geopolitical tensions keeping volatility elevated, now is the time to act.

The VSTOXX Surge: A Catalyst for Convertible Bonds

The VSTOXX, Europe’s “fear gauge,” skyrocketed in April 2025 after President Trump’s sweeping tariffs triggered fears of a global trade collapse. While the index retreated to 25.7 by month-end as tariffs were partially rolled back, its volatility trajectory remains elevated compared to pre-crisis levels. This environment is convertible bond nirvana, as their embedded equity options gain value when volatility rises.

Redcare’s Deal: A Blueprint for CB Success

The landmark €300m convertible bond issued by Redcare Pharmacy on April 8, 2025, trading at 108.8 by mid-April, underscores the CB market’s revival. Investors are flocking to these instruments because they offer downside protection via debt-like coupons while unlocking upside through equity-linked options. As one ECM banker noted: “The embedded option’s value soars in volatile markets, making CBs a win-win in today’s environment.”

The Refinancing Wave: A Tailwind for CB Issuance

The €250bn+ of pandemic-era CBs maturing in 2025–26 is fueling a refinancing boom. Companies are opting for new CBs over straight debt because:
- Volatility premiums: Elevated VSTOXX levels boost CB option values, enabling issuers to price deals attractively.
- Structural appeal: CBs provide flexibility in uncertain macro environments, with their dual debt/equity structure offering resilience against both rising rates and equity selloffs.

Euronext: The Platform to Capitalize on CB Growth

Euronext is positioned to dominate this trend. As Europe’s leading exchange for convertible bonds, it has seen trading volumes surge 40% year-on-year amid the volatility boom. Investors should monitor Euronext’s ECB Refinancing Index, which tracks CB issuance and pricing trends, to identify entry points.

Why Act Now?

• Premium pricing: Early movers can secure CBs at issuance discounts, benefiting from the “catch-up period” expected in H2 2025 as refinancing needs peak.
• Structural tailwinds: The ECB’s rate cuts to 2.25% have narrowed the cost gap between CBs and straight debt, while geopolitical risks ensure volatility stays elevated.
• Asymmetric returns: CBs offer limited downside exposure while capturing equity upside—a rare combination in today’s markets.

Final Call: Seize the CB Opportunity

The writing is on the wall: volatility is here to stay, and European convertibles are primed to outperform. Investors ignoring this trend risk missing out on one of the decade’s most compelling fixed-income plays. Act now—before premiums tighten and the window closes.

The time to invest in European convertible bonds is now. The VSTOXX has spoken—this is your signal to act.