Recession fears that have plagued equity markets since the beginning of the year — and much more starkly in recent weeks — look to be spilling over into the bond market in earnest.
Corporate bond vehicles don't tend to move very much compared with equities, or ETFs that track an equity index like the SPY S&P 500 ETF. For example, before this year, LQD, a major investment-grade corporate bond ETF, has only moved more than 10% in either direction over the course of a calendar year one time. That was in 2019 when the fund gained more than 13%.
This year, however, is very different. LQD is down nearly 19% already in 2022, and options traders are betting it could lose another 20% or more just by October.
"We saw 10 times the average daily put volume, and that was the result of a big trade in the October 95/85-put spread. In total, over 138,000 of those traded for about 50 cents. There was definitely an institutional trader participating because we saw two blocks of 72,000 and 62,000 [contracts trade], respectively," Michael Khouw, chief investment officer at Optimize Advisors, said Monday on CNBC's "Fast Money."
The move down to that 85-put strike would constitute a plunge of 21% from Monday's close, which would be totally unprecedented for a vehicle that is already trading like never before in its history.
LQD was slightly lower in Tuesday's session.
