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New Junk-Bond Derivatives Are Hot as Traders Get Creative

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When it gets tough to maneuver in the junk-bond market, traders can either give up or get creative. Many of them are opting for creativity these days.

There’s been a surge in demand for a relatively new index of derivatives that aims to replicate the risk and return of high-yield bonds. As volatility soars to the most in more than a year, trading in a total-return swaps index reached a record $4 billion in September from almost nothing in May, according to data compiled by Morgan Stanley.