It's been a stellar year to own riskier debt.
U.S. high-yield bonds have gained 14.7 percent, poised for their best annual return since 2009. And many on Wall Street expect the gains to keep building -- JPMorgan analysts just boosted their forecast for the full year's total return to 17 percent from an original estimate of 12 percent.
But someone -- or more than just one -- out there is really bearish on this debt.
Take a look at the short interest in BlackRock's $16.4 billion iShares iBoxx High Yield Corporate Bond ETF, the biggest junk-debt exchange-traded fund. It's never been higher.
Traders are borrowing almost all the shares they're allowed to, with the so-called utilization rate rising to 96 percent, according to IHS Markit data. This is a big position, equal to billions of dollars worth of shares on loan.
This is not a cheap trade. There is a cost to borrow these shares, in addition to paying out any interest that's accrued during the period that investors are short-selling the securities. And those charges are incurred before any potential gains in the share price, which would also go against a short-seller.
Normally this type of activity picks up during times of turmoil, or ahead of a big event that may be disruptive. But for the time being, it's hard to see what that event may be.
Central bankers aren't interested in rocking the boat. China doesn't appear to be on the brink of blowing up yet. Companies are chugging along without any new high-profile implosions (for the time being) and there's more than a month until the U.S. election.
Yes, there's a growing din of investment managers heralding the end of the world, or at least predicting a disastrous end of the stock and bond market rallies. But talk of bond bubbles isn't new.
The best guess about this big short is that it's part of a larger trade, either related to options activity or something more complicated. Even so, two conclusions can be drawn from this increase in bearish bets and how they're being expressed:
1) Investors are increasingly turning to ETFs for their complex trades, instead of more traditional tools like credit-default swaps.
2) One of the primary nodes of price discovery in the $1.4 trillion U.S. high-yield bond market is increasingly subject to technical factors that are, at times, hard to understand.
Many people don't believe in this year's rally and think it's simply a figment of central bankers' policies. It could be that someone just decided to bet big on that premise.
Whatever the reason, what's clear is that below the market's recent calm there's a lot of action. At some point, it's bound to make its way to the surface.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
To contact the author of this story:
Lisa Abramowicz in New York at email@example.com
To contact the editor responsible for this story:
Beth Williams at firstname.lastname@example.org