Citi Has an Alternative ‘Big Short’ on Retail

Wall Street’s bet against empty malls is getting too crowded, according to Citigroup Inc. analysts, who instead recommend wagering against individual retailers as the “next big short.”

Investors should consider buying default protection through the derivatives market on a basket of bonds from retailers that include Target Corp., Gap Inc., Nordstrom Inc. and Macy’s Inc., according to Citi’s Anindya Basu and Calvin Vinitwatanakhun.

The strategy differs from the one pursued by a growing number of hedge funds, which have wagered against mall properties through CMBX derivatives indexes that tracks commercial mortgage-backed securities. The prevailing theory is that failing brick-and-mortar retailers will mean higher vacancies and bankruptcies for mall operators, with losses inflicted on CMBS holders.

Read on.

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