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Portfolio managers are selling default protection at an increasing pace, a signal they see little risk on the horizon. Their position on the main investment-grade U.S. credit-default swap index now amounts to over $105 billion, the most in at least three years, based on data compiled by Barclays Plc and Bloomberg. It's a similar picture in Europe.
Managers of collateralized loan obligations are struggling to make the numbers work after high demand from investors enabled borrowers to squeeze their interest margins.
The selling comes after overseas investors made record purchases of US corporate debt in 2024. Official data shows the demand slowing in February.
The move comes as bonds Saks sold to finance its $2.7 billion acquisition last year have lost more than a third of their value since they were issued in December.
The disparity comes as fixed-income traders allocate money into safer credits, such as investment-grade or US government debt, amid concerns that borrowers in the lowest-rated rung of corporate debt are even more at risk of defaulting than usual.
The Federal Reserve's extraordinary effort to keep credit flowing to companies during the COVID-19 pandemic is also shunting money to banks' bottom lines.
The company is looking to sell $1.1 billion of junk bonds secured by marquee properties including its State Street store in Chicago. The retailer is also setting up a line of credit worth about $3 billion, backed by its unsold goods
Hedge funds are making headlines daily with plans to capitalize on this rapid shift in the outlook, contending the market presents a once-in-a-lifetime opportunity
The Federal Reserve committed Monday to conducting more asset purchases of Treasury securities and mortgage-backed securities and announced $300 billion in new financing for credit facilities.
