US Equity Derivatives Strategy: At this rate: Is rate volatility too low? How to trade higher yields

Research evidence excerpt

US Equity Derivatives Strategy: At this rate: Is rate volatility too low? How to trade higher yields

Global Research

16 June 2026ab

US Equity Derivatives Strategy Global Strategy

AmericasAt this rate: Is rate volatility too low? How to

trade higher yields Maxwell Grinacoff, CFA

Strategist

maxwell.grinacoff@ubs.com

+1-212-713 3892

Equity/bond yield correlation at multi-decade lows [Figures 1-5] Gerry Fowler

Equity/bond yield correlation is at 30y lows. Deeply-negative equity/bond yield Strategist

correlation (i.e. higher bond yields, lower equities, and vice versa) presents a conundrum gerry.fowler@ubs.com

+44-20-7567 5490

for multi-asset investors – when positive, bonds organically act as a diversifier against

equity risk. When negative, investors need to cut exposure in both equities and bonds to Artour Danilov

reduce risk. This has the potential to create a self-reinforcing effect of coordinated Strategist

equity/bond deleveraging, particularly amidst periods of macroeconomic uncertainty. artour.danilov@ubs.com

+44-20-7567 5203

Phoebe WhiteThough not our US economists' base case, the Fed Funds futures market is pricing in an

~80% probability of at least one 25bp rate hike by the December FOMC. The S&P 500

phoebe.white@ubs.com

one-day implied move heading into June FOMC is ~70bps, in line with the last 1y +1-212-713 2130

average. While we still think this is potentially too low given how risks have skewed, we

Keith Parkerare cognizant of how poorly equity index gamma has carried around major macro events

this year (see here); See also A new FOMC chair from our US Economists. keith.parker@ubs.com

+1-212-713 3296

Bond volatility typically higher during periods of negative equity/bond yield

Sean Simondscorrelation, particularly if Fed is hiking [Figures 6-8]