As fixed income instruments become more complex and hedge funds are beginning to set their sights on predictable returns, many are turning to the bond market. In fact, in the past 12 months through April, hedge funds accounted for a full 30% of all bond trading—double from the previous year, The Wall Street Journal reports, citing a study by
Of bond trades involving investment-grade derivatives, hedge funds accounted for 55% of all trades, the same amount as they did for emerging-market bonds. But for high-yield derivatives, hedge funds accounted for 80% of the volume. And for distressed debt, hedge funds went after 85% of the trades.
“We’ve seen over the past 10 years a proliferation of products created to meet the needs of hedge funds,” said Tim Sangston, a Greenwich Associates managing director. “More and more of the growth in bond trading is coming from these kind of professional traders and investors.”
Notwithstanding, hedge funds that bought debt instruments now embroiled in the subprime mess are suffering, namely those that bought mortgage-backed securities, asset-backed securities and collateralized debt obligations.
