“Short interest as a percentage of shares outstanding on the $15 billion iShares iBoxx $ High Yield Corporate Bond ETF, ticker HYG, hit an all-time high of 29 percent Monday, Markit data show,” according to Bloomberg. “Add elevated shorts on the SPDR Bloomberg Barclays High Yield Bond ETF, ticker JNK, in concert with a European counterpart, and bearish sentiment has piled up even as junk-bond spreads recover from the selloff earlier this month.”
Bond investors have been dumping their exposure to the more riskier segment of the fixed-income market as U.S. Treasury yields reached a level that triggered a global sell-off. However, stocks have rebounded this week.
With yields on more conservative debt going up, traders view the yields on junk debt less as less attractive in comparison relative to the risk exposure.
“The potential for a short squeeze looks elevated considering the funds’ indicative gross dividend yields over the next 12 months. At over 5 percent — the amount traders would have to pay lenders annually — shorting JNK is no free lunch,” reports Bloomberg.
For more on bond ETFs, visit our Fixed Income category.