Is there a way to trade options or futures on the change in the interest rate spread between high grade and low grade debt, such as buying a put on junk bonds or junk bond closed end fund while buying futures on treasuries (or vice versa)? I am having trouble finding a way to trade the low-grade debt end. The best I have been able to find are options on mortgage REITâs, but these are not fully satisfactory to me.
On the high end, you can spread eurodollars versus treasuries. Another thought is spreading FNM or GNM vs treasuries. I don't think you can easily find puts on MBS's, but that would allow you to play the lower end. (Of course, you can find exotic options makers in practically anything, so you'd just need to look hard enough) You can, of course, buy debt from various companies on the public market, or buy puts on those companies that have low credit ratings. There are several closed end bond funds which invest only in high-risk bonds which you could buy puts on. It's not quite what you wanted, but just some thoughts...
A few google searches turns up IMH which is optionable and invests in "non-conforming" mortgages (i.e. high credit risk) I'm sure there are more. Expanding beyond REITs seems trickier--the closed end funds that invest in corporate junk debt so far have not been optionable.