Bond Risk Exists, Here's How to Hedge With Credit Default SWAPs

As the number of high yield defaults is at a post crisis high, illuminating bond risk, it’s time to hedge in the high yield credit, a Morgan Stanley credit derivatives piece says. Looking at a variety of methods to accomplish investor goals, the report considers credit default SWAPs as the preferred execution method to express bearish opinions.

Recent bond risk signals might be muted

Technical indicators have been potentially sending improper bond risk signals in corporate credit markets recently, but don’t be deceived. Technicals “can and often do change on a dime,” Morgan Stanley credit derivatives analysts wrote in a May 13 piece “On the Hedge.”

Corporate credit bond risk...