Private Credit Short Bets Double as Bond Selloff Deepens

Investors increased bearish positions against private credit as a selloff in global bonds raised questions about the resilience of the $1.8 trillion market.

Net short selling across a sample of 14 exchange-traded funds reached $88.6 million in the first half of September, according to data from market intelligence firm EPFR based on FINRA information. The total rose from $44 million in August and came close to the $102 million recorded in March, when investors reduced their private-credit exposure more sharply.

The number of shares sold short rose to 6.4 million by mid-September, up from 2.9 million at the end of August. About 7 million shares were sold short across the ETF sample in March.

Private-credit assets are difficult to short directly. Traders instead use publicly listed vehicles and companies as proxies, including business development companies, collateralized loan obligations and alternative asset managers with large private-credit operations.

Short interest as a percentage of assets under management across the ETFs was 2.8% at the end of last year. It reached a record 3.4% in March, fell to 2.1% in August and rose to 2.7% by mid-September.

Goldman Sachs, JPMorgan and Bank of America offer clients products that allow bullish or bearish positions through baskets of publicly traded companies. The baskets include alternative asset managers, business development companies and financial institutions with private-credit operations. The banks have not disclosed trading volumes for those products.