Skip to main content

Market Overview

Putting GameStop, AMC Mania Behind, Hedge Funds Are Looking Beyond Equities For Short Bets

Putting GameStop, AMC Mania Behind, Hedge Funds Are Looking Beyond Equities For Short Bets

After recording huge losses following the GameStop Corp. (NYSE: GME) trading frenzy earlier this year, hedge funds are now looking beyond equities to focus on junk- and investment-grade rated bonds for short bets.

What Happened: Hedge funds have accumulated the biggest short position on junk bonds since 2008 amid fears of rising interest rates and warnings over bond valuations, according to a report by Bloomberg.

See also: How‌ ‌to‌ ‌Buy‌ ‌GameStop‌ ‌(GME)‌ ‌Stock‌

Citing data from IHS Markit, the report noted global high-yield bonds worth as much as $55 billion are on loan to traders seeking to profit if prices fall. This is the largest balance since the fall of 2008. This compares to about $35 billion of bonds that were sold short at the start of this year.

About $30 billion worth of bonds have been borrowed in the euro-denominated investment-grade market, the largest loan balance since early 2014, as per the report.

Speculators are reportedly predicting sovereign yields for longer-dated bonds will rise due to an increase in inflation forecasts and on potential monetary policy tightening by the Federal Reserve.

See Also: AMC Staring At 'Increasingly Favorable Environment,' CEO Says With 7 Million People Walking Into Its Theaters In Q1

Why It Matters: Investment firms and hedge funds that manage wealth often take short positions in an effort to capitalize on falling markets by profiting on stocks or other various securities if they happen to go down in value.

Amateur traders belonging to the Reddit Investor forum r/WallStreetBets bid up heavily shorted stocks such as GameStop and AMC Entertainment Holdings Inc. (NYSE: AMC) to create a short squeeze earlier this year.

The flurry of buying by retail investors forced bearish investors, including hedge funds, to unwind their bets against the stocks and sparked a rally in these stocks in January.

It was reported in January that hedge fund Melvin Capital Management, which was at the heart of the GameStop trading frenzy, lost 53% on its investments in that month.

Price Action: GameStop shares closed almost 2.6% higher on Tuesday at $146.92, while AMC Entertainment shares closed almost 3.2% higher at $10.05.

Read Next: Has The GameStop Sell-Off Started?

Photo by Chris Potter on Flickr


Related Articles (GME + AMC)

View Comments and Join the Discussion!

Posted-In: News Short Sellers Bonds Short Ideas Hedge Funds Events Markets Trading Ideas Best of Benzinga

Don't Miss Any Updates!
News Directly in Your Inbox
Subscribe to:
Benzinga Premarket Activity
Get pre-market outlook, mid-day update and after-market roundup emails in your inbox.
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Fintech Focus
A daily collection of all things fintech, interesting developments and market updates.
Everything you need to know about the latest SPAC news.
Thank You

Thank you for subscribing! If you have any questions feel free to call us at 1-877-440-ZING or email us at