Primary Dealers Hold $4B Net Short in Corporate Bonds for First Time Since 1998

According to analytics service Bull Theory, primary dealers hold a net short position in corporate bonds worth approximately $4 billion this year, marking the first time since 1998 that major banks have sold more credit exposure than they currently hold on their balance sheets. Most of the short exposure is concentrated in longer-term debt, with a $13.7 billion short position in securities with maturities of five years or more.

This shift emerges as the stock market reaches unusual heights. S&P 500 earnings are projected to grow 24% this year, with earnings per share rising from 220 in 2023 to 341 in 2026, according to analyst Charlie Bilello. The divergence—rising equity optimism combined with historically low compensation for credit risk—suggests investors may be underestimating downside risk.