Bloomberg: There’s a disconnect between a high-yield market that’s recovered relative to IG and high-yield CDS, which has failed to do so.
One possible explanation is that the junk CDS index is heavy on beaten up retailers, airlines and homebuilders, though it’s actually relatively light on energy names, which have been this year’s worst performers. Another is that traders are using swaps to hedge long positions in the bonds. A Bank of America investor survey found that 32% of HY investors expect IG to outperform, a level BofA says is comparable to December 2008.
One possible explanation is that the junk CDS index is heavy on beaten up retailers, airlines and homebuilders, though it’s actually relatively light on energy names, which have been this year’s worst performers. Another is that traders are using swaps to hedge long positions in the bonds. A Bank of America investor survey found that 32% of HY investors expect IG to outperform, a level BofA says is comparable to December 2008.