The Fear Is Gone From the Biggest U.S. Junk Rally in a Decade
- Implied volatility in benchmark junk-bond ETF has tumbled
- HSBC and Morgan Stanley question sustainability of rebound
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Traders are going all-in on the best new year rally in U.S. junk bonds since 2009, cutting hedges that help cushion nasty shocks like hawkish monetary moves and weak corporate earnings.
At-the-money implied volatility in the $14.9 billion iShares iBoxx High Yield Corporate Bond ETF has more than halved since the December maelstrom and now sits below historic averages. The options are so cheap Macro Risk Advisors recommends protective hedges, reversing a call in November to sell them.