Investor excitement over artificial intelligence is pushing convertible bond markets to new extremes. Demand for exposure to AI-related companies has led buyers to accept near-zero coupons, betting instead on stock gains for returns. This shift mirrors risk levels seen during the pandemic, weakening a key investor protection: income that cushions against equity declines.

The market is becoming increasingly equity-biased, with safeguards eroding as investors prioritize upside potential over downside protection. Analysts warn this could either fuel productivity gains or represent a historic waste of capital. Bloomberg's Selina Chen and Ronan Martin report on the growing tension between opportunity and risk in this rapidly evolving sector.

The trend reflects broader market dynamics where AI enthusiasm overrides traditional investment boundaries. As convertibles lose their income component, they resemble equity more than fixed income, raising questions about long-term sustainability of this approach.