Recent market volatility has led investors to shift from shorting equities to shorting bonds, exploiting the negative correlation between bonds and the S&P 500. This strategic rotation potentially impacts ETFs like TLT, SPY, HYG, and JNK.

With the recent volatility, bonds have been negatively correlated with the S&P 500, as demonstrated by the performance of the TLT and SPY. This negative correlation is one reason why a balanced portfolio of bonds and stocks is recommended to lower portfolio volatility.

Credit ETFs, which are typically hybrids of bonds and equities, trade like equities. HYG and JNK had a 0.9 correlation with the S&P 500 and a negative correlation with TLT.

The short positions in the equity indices remain mostly unchanged. For the ETF, short interest in SPY fell as the ETF declined, while short interest in TLT rose as the ETF increased.

Short interest in SPY fell by 7%, while short interest in QQQ increased slightly. For the actual SPX and NDX stocks, overall short positions remain mostly unchanged.

SPY

TLT

Short interest in TLT rose by 8%, while JNK and LQD saw increases of 5% and 8%, respectively. Bond investors in the equity market increased their short positions amid the recent turmoil. Short interest in JNK and LQD rose as these ETFs declined.

When combined with the S&P data, it appears investors are buying (covering their shorts in) the S&P 500 and shorting bonds, taking advantage of the decoupling between the two.

JNK