Credit Derivatives Navigator: Carry now, convexity next

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Credit Derivatives Navigator: Carry now, convexity next

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Credit Derivatives Navigator

Carry now, convexity next

Vols screening low vs macro 30 June 2026

Vol has compressed notably across credit, with implieds now screening towards the Credit Derivatives

lower end of history, even as macro risks persist, the Fed have turned hawkish and oil United States

prices remain still above pre‑conflict averaging levels despite a notable pullback from Ioannis Angelakis

the highs. This disconnect suggests markets are increasingly over‑pricing good Credit Derivatives Strategist

geopolitical outcomes, leaving credit vol and CDS spreads looking too rich versus MLI+44 (UK)20 7996 0059

broader risk signals. A hawkish Fed is not supportive either, we think. We also note the ioannis.angelakis@bofa.com

recent re-emergence of private credit headwinds and broad credit deterioration across Yuri Seliger

the BDC complex (see High Yield & Loan Strategy report). This could result in higher CreditBofAS Strategist

interest in the newly launched CDX Financials index, from the short side. +1 646 855 7209

yuri.seliger@bofa.com

Neha KhodaThe Quant view: short vol still works - but less juice

Credit Strategist

We stay constructive on short vol systematic strategies, in the near term (see report: BofAS

Credit investing through the oil lens), but with diminishing outright returns from further Barnaby Martin

implied compression. The next leg is more about realised vols staying subdued. Credit Strategist

MLI (UK)

Cross‑market, the opportunity set is not uniform. While IG implieds screen low in both

Mohit Agarwalla

the US and Europe, CDX HY stands out as offering a larger vol risk premium, with Credit Strategist

realised more compressed vs peers, and implieds still relative elevated.