A New York hedge fund is making a $1 billion bet on more bond market pain

richard perry

(CNBC)
Richard Perry.

Perry Capital, a $10 billion New York-based multistrategy hedge fund led by Goldman Sachs alum Richard Perry, is making a $1 billion bet against investment-grade corporate bonds, according to The Wall Street Journal.

The Journal reports that Perry Capital is shorting debt issued by 10 companies. The report didn't specify which companies, but it said the fund's short bet included owners of commercial real estate and telecom companies.

For the trade, the fund purchased credit-default swaps on the bonds at a cost of about $10 million a year, the report said.

The hedge fund stands to profit handsomely if the companies are downgraded by ratings agencies.

Investment-grade bonds have a rating of BBB or higher by Standard & Poor's or Baa3 or higher by Moody's. They are companies seen as having the safest balance sheets. If they are downgraded, it could be a bigger sign about the overall health of the economy.

Last year, Perry Capital's flagship lost about 12%, according to the Financial Times. The 96-person firm also cut 20 of its workers as the fund was hit with redemptions.

We've reached out to Perry for comment.

To read the full Wall Street Journal story click here

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