Macro hedge funds are shorting homebuilding companies by selling the common stock and buying credit-default swap protection, to position for a downturn in the U.S. housing market. Toll Brothers, for example, is one of the most popular names being shorted, said Greg Peters, chief credit strategist at Morgan Stanley.
As the play has become crowded some funds have also started to turn to mortgage real-estate trusts. Using the dividends from REITs such as Saxon Capital and New Century Excel the funds have been buying credit-default swaps on their debt, said one hedge fund manager.
The Federal Reserve's top two officials last week highlighted the risk a sinking housing market poses for overall economic growth in the second half of the year.
