Investors have rushed into the derivatives market to protect corporate bond portfolios from a possible sell-off, as they grapple with the growing risk that the recent slump in stock prices will spread to companies’ debt.
So far, corporate bond markets have remained comparatively calm as stocks have sold off this year. The difference in yield between risky junk bonds and US Treasuries has yet to surpass levels in December, when Omicron fears surged, according to Ice Data Services. As well as CDS indices, investors have turned to credit options, where contracts that expire soon - used to protect investors from the possibility of a near-term downturn in prices - have risen in value. “It’s a sign of acute risk-aversion,” said Mr Hjort.Some of the largest exchange traded funds that track corporate bonds have also seen elevated short activity, according to data from Markit, a bet that also pays off if prices fall.