Traders using exchange-traded funds (ETFs) to establish bearish positions or put hedges on long trades are targeting some well-known international and fixed income ETFs. For the week that ended March 19, the iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) and the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) saw the largest increases in short interest in dollar terms, according to data from S3 Partners.

LQD, the largest corporate bond ETF, saw its short interest rise $598 million to $2.84 billion last week, while traders added $177 million to short positions in HYG, bringing short interest in the largest junk bond ETF to $5.06 billion, according to S3 Partners.

The uptick in short interest in HYG and LQD comes ahead of this week's Federal Open Market Committee (FOMC) meeting at which the Federal Reserve is widely expected to raise interest rates. Anxious bond market participants are also waiting on commentary from the central bank that could reveal clues regarding how many times it plans to boost borrowing costs this year. (See also: Understanding Interest Rates, Inflation and Bonds.)

Year to date, investors have pulled nearly $9.1 billion LQD and HYG combined. Only one ETF, the SPDR S&P 500 ETF (SPY), has suffered larger year-to-date outflows than LQD. HYG's year-to-date outflows of $3.02 rank it sixth among U.S.-listed ETFs for assets lost this year.

In further confirmation that investors are skittish about higher-yielding assets ahead of the Fed meeting, short interest in the Vanguard Real Estate ETF (VNQ) and the Utilities Select Sector SPDR (XLU) rose by $53 million and $50 million, respectively, last week, according to S3 data. Investors have yanked $2.05 billion from VNQ, the largest real estate ETF, this year. VNQ and XLU have dividend yields of 4.84% and 3.58%, respectively. (For more, check out: How Utilities ETFs Deal With Rising Rates.)

Perhaps on the basis that higher interest rates will finally spark a rebound in the U.S. dollar, short interest also rose in three of the largest international equity ETFs last week. For example, shorts added $115 million to bearish positions in the Vanguard FTSE Developed Markets ETF (VEA), while the iShares MSCI EAFE SmallCap ETF (SCZ) saw short interest increase by $70 million to $216 million. 

The iShares Core MSCI EAFE ETF (IEFA), a direct competitor to VEA in the arena of low-cost international equity funds, saw a $51 million increase in short interest last week. IEFA is this year's top asset-gathering ETF, with inflows of $14.57 billion. (See also: How to Prepare for Rising Interest Rates.)