Boaz Weinstein

Sometimes people who can't sell the thing, they can't sell or sell what they can sell. And so private credit can certainly infect public credit... I never would have thought ETFs for high yields could trade at 10 to 15 point discount. They did, and people sold them there because they needed the money. Private credit investments are notoriously difficult to sell during market stress. If a macro shock occurs and investors need to raise cash to meet redemptions or margin calls, they will be forced to liquidate their highly liquid public high-yield bond ETFs. This forced selling pressure will overwhelm the public market, driving ETF prices down significantly, potentially causing them to trade well below their actual Net Asset Value. Shorting high-yield public debt ETFs acts as a direct tail-risk hedge against a liquidity crisis or blowup in the opaque private credit markets. If the economy achieves a soft landing and corporate default rates remain low, high-yield spreads will stay tight. In this scenario, a short position will suffer from negative carry, as the shorter must pay the high dividend yield of the ETF.