Cross Asset Hedging: Hedges too cheap for likely fall vol

Research evidence excerpt

Cross Asset Hedging: Hedges too cheap for likely fall vol

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Cross Asset Hedging

Hedges too cheap for likely fall vol

Asset Allocation

Consider hedging now in case market-wide calm fades 17 July 2026

Cross-asset volatility has retraced over the past month even if several sources of Asset Allocation

financial stress remain. Renewed tensions in the Middle East have pushed oil prices Global

higher again, keeping inflation risk elevated and limiting the scope for central banks to

ease. Meanwhile, elevated global chipmaker volatility is at the centre of a growing Vittoria Volta >>

Equity-Linked Analyst

debate on whether the current pace of AI-related spending can be sustained. These BofASE (France)

concerns have been reinforced by rising funding costs for hyperscalers and growing vittoria.volta@bofa.com

retail leverage via ETFs (see GEVI 30-Jun-26: Are levered ETFs a threat?), leaving risk Abhinandan Deb >>

assets more vulnerable to a reversal in AI sentiment. Against this backdrop, the average MLI (UK)

cost of tail protection across our cross-asset universe has dropped to the 21st percentile +44 20 7995 7148 abhinandan.deb@bofa.com

since 2007, offering an attractive entry point for investors looking to add downside

Benjamin Bowler

protection for the coming months. With the US midterm election likely to introduce an Equity-Linked Analyst

additional layer of policy uncertainty, we believe the current period of relative market- BofAS +1 415 676 3595

wide calm may prove temporary. benjamin.bowler@bofa.com

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FX and Credit hedges continue to offer best value

FX hedges have become exceptionally cheap, with their average cost-to-benefit ratio Exhibit 1: X-asset vols & credit spreads

falling to the 2nd 18y percentile (Exhibit 2).