ProShares has launched two funds that provide pure exposure to the credit component of the high yield bond market uncoupled from the interest rate component.
ProShares CDS North American HY Credit ETF (TYTE) and ProShares CDS Short North American HY Credit ETF (WYDE) are listed on the BATS exchange.
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"TYTE and WYDE have a variety of uses in sophisticated portfolios," said Michael L. Sapir, Chairman and CEO of ProShare Advisors LLC. "For instance, WYDE can be used to hedge against the credit risk in high yield bonds. With TYTE, investors can obtain exposure to the high yield bond market without the risk associated with rising interest rates."
While a wide selection of ETFs providing pure exposure to corporate credit have long been available in Europe, TYTE and WYDE are the first launched in the United States.
TYTE and WYDE get pure exposure to changes in credit spreads by investing in index-based credit default swaps (CDS), instruments that reflect the market’s view of a bond issuer’s credit quality. The funds’ exposure is not leveraged.
The CDS market is generally viewed as the most efficient and liquid market for protection against corporate bond defaults. With more than $8 billion in average daily trading volume, the market for high yield CDS has been more liquid than the high yield bond market itself. The volatility of the high yield CDS market has been lower than equities and comparable to the high yield bond market.* CDS transactions are cleared through a central clearinghouse.
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