Some investors have placed a huge bet against U.S. high-yield corporate bonds. Unfortunately, it’s also a bet against U.S. Federal Reserve policy, which breaks a very important investing tenet: Never fight the Fed.
Almost 13 million shares of the iShares IBoxx High Yield Corporate Bond Fund (HYG) have been sold short (borrowed and then sold in the open market with the hope of buying the shares back at a lower price) after the fund jumped 9.5 per cent in the latter half of 2012. The thinking is that high-yield corporate bonds have rallied too far, too quickly and are poised for a major sell-off. The bond market in general is, according to a number of pundits, ready to collapse after years of record asset inflows.