Shorts in SPDR Junk Bond ETF Surge to Highest Level Since 2010

(Bloomberg) -- Investors are really confident that the second largest high-yield bond exchange-traded fund is headed lower.

Short interest as a percentage of shares outstanding on the SPDR Bloomberg Barclays High Yield Bond ETF, ticker JNK, surged to more than 30 percent Wednesday, according to data from IHS Markit Ltd. That’s about a threefold increase from January and the largest short position in the fund since 2010.

Shorts in SPDR Junk Bond ETF Surge to Highest Level Since 2010

It’s a costly wager considering the fund’s hefty price tag. The ETF, which is managed by State Street Corp., has an implied dividend yield of 5.7 percent, which is how much those making the short bets have to pay lenders annually. So, for the shorts to break even, JNK would have to fall more than that amount over the course of a year. The fund posted a slight gain in 2017 and climbed 7.5 percent in 2016.

It’s been a rough ride for the high-yield bond market of late, with the Bloomberg Barclays U.S. Corporate High-Yield Total Return Index falling 2 percent since the gauge’s high on Jan. 26. Last year, the index rose more than 7 percent as investors took persistently low interest rates and muted stock volatility as signals to pile into riskier assets.

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