State Street’s Junk-Bond ETF Draws Record Volume of Bearish Bets

Investors are placing a record volume of bearish bets on junk bonds by shorting State Street Corp.’s exchange-traded fund that owns the notes as the debt loses value for the first month since May.

The volume of borrowed shares of the SPDR Barclays High Yield Bond ETF surged to 22.8 million on Nov. 16, about three times the average during the past year and up from 9.75 million shares a month ago, according to Markit Group Ltd. In a short sale, traders sell borrowed stock in a bet they can profit from price declines.

Investors are using ETFs, which typically allow individuals to speculate on securities without directly owning them, to hedge against further declines in junk bonds as the notes lose 0.7 percent this month, according to Bank of America Merrill Lynch index data. Speculative-grade debt funds reported $1.3 billion of redemptions last week, the biggest withdrawal since June, as concern mounts that the U.S. economy won’t grow quickly enough to support the most-indebted corporate balance sheets.

Borrowed shares of BlackRock’s junk-bond ETF, the biggest of its kind, rose to 7.4 million on Nov. 16, the most since Aug. 21, Markit data show. Unlike mutual funds, whose shares are priced once daily, ETFs are listed on exchanges and are bought and sold like stocks.

The five biggest junk-bond ETFs have lost $2.77 billion of assets since Sept. 20, when the funds’ assets reached a high of $31.98 billion, according to data compiled by Bloomberg.

To contact the reporter on this story: Lisa Abramowicz in New York at labramowicz@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at Agoldstein5@bloomberg.net