As investors begin to worry about market volatility, high-yield bonds and riskier assets begin to feel the heat. Consequently, a number of hedge funds, like Ellington Management, Tilden Park Capital and Libremax Capital, are shorting junk bonds.
In the ETF space, the ProShares Short High Yield ETF (NYSEArca: SJB), an inverse play on the Markit iBoxx $ Liquid High Yield Index, has gained 1.9% over the past month. [Unheralded Bearish Junk Bond ETF Grows by 50%]
Meanwhile, the S&P 500 has dipped 2.2% and the Dow Jones Industrial Average fell 2.8% over the past month. Investors, though, can look at inverse plays to hedge broad markets, such as the ProShares Short S&P500 (NYSEArca: SH), which tries to reflect the -100% daily performance of the S&P 500, and ProShares Short Dow30 ETF (NYSEArca: DOG), which tries to reflect the -100% daily performance of the Dow Jones Industrial Average. Over the past month, SH is up 2.1% and DOG gained 2.7%.
For more information on speculative-grade debt, visit our junk bonds category.
Max Chen contributed to this article. Tom Lydon’s clients own shares of HYG and JNK.