Hedging geopolitical risks: Taking Position

Research evidence excerpt

Hedging geopolitical risks: Taking Position

Accessible version

Taking Position

Hedging geopolitical risks

Geopolitics shift RV proposition 22 July 2026

Higher oil prices have traditionally been a headwind for European assets. Downside risks Credit Strategy

to compression trades between iTraxx Main and CDX IG are re-emerging, and we believe Europe

these risks will become more apparent in the near term, particularly if oil prices continue Ioannis Angelakis

to rise. As we have highlighted in the past, the European macro cycle is more closely Credit Derivatives Strategist

linked to energy markets than the US macro cycle, meaning higher oil prices pose a MLI+44 (UK)20 7996 0059

greater headwind for Europe. At current levels of Main versus CDX IG compression ioannis.angelakis@bofa.com

relative to oil prices, we expect further Main underperformance vis-à-vis CDX IG 5yr. Barnaby Martin

Credit Strategist

Exhibit 1: iTraxx Main vs CDX IG likely to decompress as oil prices rise MLIbarnaby.martin@bofa.com(UK)

European credit risk likely to underperform from here

Mohit Agarwalla

10 150 CreditMLI (UK)Strategist Main - CDX IG

140 mohit.agarwalla@bofa.com

8 Oil (RHS) 130

120 6

4 100

2 80

70 0

-2 50

Nov-25 Dec-25 Jan-26 Feb-26 Mar-26 Apr-26 May-26 Jun-26 Jul-26

Source: Bloomberg

BofA GLOBAL RESEARCH

As the macro cycle in Europe has slowed over the past few months, the risk of entering

the "recession" phase of our macroeconomic framework has increased. Should our

indicator decline again in August and move into negative territory, this would signal that

the macro backdrop is transitioning into the recession phase (see reports: RV Panorama

and Credit investing through the oil lens). We see XO underperforming iTraxx Main (see

report: Hedging macro headwinds).