Bears Take Over Bond Default Index for First Time Since 2014By
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.