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

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

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

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

Pimco representatives didn't respond to e-mails seeking comment.

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

Of course, with the economy improving and central banks globally committed to their stimulus programs, that doesn't look as likely for now.

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