Investors are rushing to buy credit default swap protection as mounting risks rattle US and European credit markets. Barclays strategists this week recommended buying CDS protection on the US high-yield index, while selling less likely-to-pay-out protection in a strategy known as a payer swap. Morgan Stanley has suggested similar hedging trades recently.

Market signals show investors turning to derivatives for protection, with the cost of US high-grade corporate bond CDS climbing 3 basis points this week even as cash bond spreads narrowed. Andrew Weinberg of Saba Capital Management noted that risks from private capital and geopolitics haven't been fully reflected in corporate bond spreads, making this "a very good time to be looking at credit hedges."

Growing concerns include the US-Iran conflict, rising oil prices that could fuel inflation, and unexpected job losses in February when employers cut 92,000 positions. The Federal Reserve's potential shift toward tightening monetary policy adds another layer of risk. While investors aren't panicking yet - CDS costs remain below April 2025 levels - money managers like DoubleLine Capital have been reducing risk allocations for months. As Christian Hoffmann of Thornburg Investment Management observed, recent geopolitical events, AI disruption, and private credit pressures are creating clearer winners and losers in the market.