If corporate bonds don't trade frequently enough for you, onesolution is to turn elsewhere.

More and more investors are betting on whether the notes will goup or down in value without owning the securities, usingderivatives. This has been attractive for asset managers looking tobe nimble in markets or make big bets, especially as corporate-debttrading volumes wane.

Pacific Investment Management Co.'s (Pimco's) Bill Gross,manager of the world's biggest bond fund, is one who's usingcredit-default swaps (CDS) for bullish wagers on company debt. Heaccelerated his use of the contracts in the three months ended June30 by selling protection against credit losses, according to aquarterly report.

Gross isn't alone: Outstanding bets on a credit-swaps index tiedto North American high-yield bonds have soared to the highest levelsince at least 2011. Net wagers on the latest Markit CDX NorthAmerica High Yield Index rose to $31.5 billion as of July 18,compared with a peak of $29.1 billion on the last series in March,according to data compiled by Bloomberg.

Investors are looking for faster ways to express views oninvestment-grade and high-yield bonds, which are trading less as aproportion of the overall debt outstanding as Wall Street banks useless of their own money to make markets.

Credit swaps “can be managed more easily in some cases than bondportfolios,” Peter Tchir, Brean Capital LLC's head of macrostrategy in New York, wrote in a July 25 report. “Real moneylooking for an 'edge' will look to CDS.”

Investors are returning to securities that magnify returns andlosses as they seek bigger gains with bond yields near record lowsand muted volatility. They're finding comfort in the fact thatthese swaps, which helped fuel the worst financial crisis since theGreat Depression, are more closely regulated now that traders haveto route transactions through central clearinghouses.

Pimco's $225.2 billion Total Return Fund increased the amount ofprotection it sold against losses on corporate debt in the threemonths ended June 30, boosting a measure of risk tied tocredit-default swaps by 62 percent in the period compared with thefirst quarter, according to the report.

Pimco representatives didn't respond to e-mails seekingcomment.

While these derivatives make it easier to place bets in theshort term, they may magnify losses in a protracted downturn.Should defaults accelerate, swaps sellers would have to compensatetheir counterparties for any losses.

Of course, with the economy improving and central banks globallycommitted to their stimulus programs, that doesn't look as likelyfor now.

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