JPMorgan Chase and other Wall Street banks have begun trading credit default swaps against flagship private credit funds run by Blackstone, Apollo Global, and Ares Management. These derivatives pay out if the vehicles default on debt, allowing investors to bet on or hedge against industry strains. The move comes amid growing demand for novel strategies on non-publicly traded funds as redemption requests mount.

The new trading activity targets the $2tn private credit industry, which faces mounting pressure from redemption requests, rising financing costs, and regulatory scrutiny. Blackstone's Private Credit Fund holds $83bn in investments, making it the industry's largest vehicle. S&P Global's recent launch of the CDX Financials index, including these funds, preceded the banks' active trading of CDS contracts.

While initially modest, CDS trading has seen prices tighten on all three funds since S&P's index launch. Traders now wager on spread differences between fund bonds and CDS. Wall Street banks have been developing strategies to let clients bet on further private credit pain, though some proposals like BofA's stock trading recommendations were withdrawn as market conditions evolve.