Credit traders have ripped out a wartime hedge on European investment‑grade debt, closing a short that swelled to $20 billion on the Markit iTraxx Europe index. DTCC data compiled by Barclays shows the position is now outright long, now markedly signalling a swing in sentiment as Middle‑East hostilities ease and spreads narrow. Investors are now betting on credit tightening rather than protection.

Fund managers at Insight Investment and Andromeda Capital are leading the catch‑up trade, hunting “unloved assets” across the continent. Alberto Gallo of Andromeda notes pockets of value in Ukraine’s advancing front and Hungary’s new pro‑European government, while Insight favors chemicals that enjoy better raw‑material access than rivals. Both firms stay wary of firms exposed to higher oil prices in 2024.

The shift narrows Europe’s long‑position gap with North America, where the CDX IG index carries $135 billion of net long exposure versus $11 billion in Europe. Higher yields—3.5% on the Bloomberg Euro Aggregate Corporate Index and 5.73% on the Pan‑European High‑Yield Index—give buyers income as issuers refinance at steeper coupons. The unwind confirms a market tilt toward credit recovery rather than protection.