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Bond Investors Are Getting Really Creative When it Comes to Hedging Their Risk 

June 10, 2015

Tracy Alloway, Bloomberg Business

If you can't hedge credit with credit, try stocks instead.

What do you get the credit investor who has everything? How about an effective hedge against a major blow-up in bonds?

Hundreds of billions of dollars have poured into corporate bonds helping to boost the size of the overall U.S. market by almost a third over the past six years. At the same time, traders, investors and regulators have all been fretting over the ability to buy and sell the securities without massively impacting their prices. Everyone (and possibly their mothers) seems to be concerned about so-called liquidity in the $7.8 trillion market. 

The combination of a booming asset class and declining liquidity means that investors are also worried about the bull market in credit coming to a sudden and inglorious end.

To protect their portfolios against a dramatic downturn in bond prices they need to offset, or hedge, their positions.

But protecting your portfolio is easier said than done and the menu of options on offer to the cautious credit investor has been shrinking.

Read more: Bloomberg Business

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