Citigroup is advising hedge fund clients to take short positions in bonds issued by French shipping group CMA CGM, arguing that the recent rally in the company’s debt may prove difficult to sustain as additional container shipping capacity enters the market, according to a report by Bloomberg.
The report cites unnamed people familiar with the bank’s thinking as saying that Citi’s credit trading and research teams believe freight rates could come under pressure later this year, weighing on the credit outlook for shipping companies that have benefited from elevated transport costs.
CMA CGM’s bonds have strengthened in recent months as geopolitical tensions in the Middle East disrupted global shipping routes and drove freight rates higher. The closure of the Strait of Hormuz and uncertainty surrounding the conflict involving Iran have boosted earnings expectations across the shipping sector, supporting prices for the company’s debt.
Additional support has come from a surge in US imports as businesses accelerated shipments ahead of the prospect of new trade tariffs, further tightening container markets.
However, Citi reportedly believes these favourable conditions may prove temporary.
The bank’s analysts expect a wave of new container vessels scheduled for delivery later this year to increase global shipping capacity, potentially easing freight rates through late 2026 and into 2027. Lower transport prices could reduce profitability across the sector and weaken the case for current bond valuations.
Among the securities highlighted is CMA CGM’s €700 million senior unsecured bond due in January 2032, which has risen markedly since the end of the first quarter. The company’s €600 million bond maturing in January 2031 has also traded above par as investors priced in improved operating conditions.
For hedge funds, the recommendation reflects growing interest in relative value opportunities within credit markets, where managers are increasingly seeking to exploit pricing dislocations created by geopolitical events and changing industry fundamentals.
The proposed trade also illustrates how credit-focused hedge funds are looking beyond the immediate impact of Middle East tensions, instead positioning for longer-term shifts in shipping supply and demand as a substantial order book of new vessels is delivered to the global container fleet.
CMA CGM is expected to expand its market position significantly as its new ships enter service, with the company forecast to become the world’s second-largest container shipping operator by fleet capacity. However, the resulting increase in industry capacity could ultimately weigh on freight rates and corporate credit performance across the sector.
