Credit markets are showing signs of mounting strain as investors ramp up hedging activity. The surge in defensive positioning is arriving alongside an increase in credit spreads.

This raises the question of how stress in traditional debt markets could ripple through to digital assets.

Market Is Bracing for Credit Stress

According to the Kobeissi Letter, put option open interest across four large US credit exchange-traded funds (ETFs) has reached a record high of 11.5 million contracts. This includes the:

• iShares iBoxx $ High Yield Corporate Bond ETF (HYG)
• State Street SPDR Bloomberg High Yield Bond ETF (JNK)
• iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD)
• Invesco Senior Loan ETF (BKLN)

Total outstanding contracts on these…