Photographer: Martin Leissl/Bloomberg

Bears Take Over Bond Default Index for First Time Since 2014

  • Investors accumulate $7.1 billion of insurance on iTraxx Main
  • Hedging for ECB taper, credit cycle positioning behind move

Bearish sentiment has toppled credit-market bulls.

For the first time in three years, investors are short risk on the iTraxx Main index of credit default swaps, according to JPMorgan Chase & Co. They have amassed $7.1 billion of insurance on investment-grade corporate bonds, the latest data from the Depository Trust & Clearing Corp showed. 

Positioning on the iTraxx Crossover index, which covers junk bonds, indicated a net short risk position of $8.3 billion, JPMorgan said.

The turnaround can be attributed to credit funds hedging against the wind-down of the European Central Bank’s asset-purchase program, and global asset allocation funds preparing for a downturn in the business cycle, according to London-based strategists including Matthew Bailey and Daniel Lamy.

Investors overseeing about $1.1 trillion have been cutting exposure to the world’s riskiest corporate debt as rates grind too low to compensate for potential risks, according to a recent Bloomberg analysis.

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