Us Equity Derivatives Strategy

This report examines the impact of low equity/bond yield correlations and potential interest rate hikes on derivative strategies. It highlights opportunities in cyclical sectors that appear underpriced for a higher yield/higher growth scenario.

Key Takeaways

• 1.Equity/bond yield correlation is at a 30-year low, complicating the role of bonds as a portfolio diversifier.
• 2.Investors should consider shifting from selling bond volatility to funding equity volatility as the Fed enters a potential hiking cycle.
• 3.While major equity indices are priced for higher yields, cyclical sectors like regional and large-cap banks appear underpriced.

Table of Contents

• Equity/bond yield correlation at multi-decade lows
• Bond volatility typically higher during periods of negative equity/bond yield correlation, particularly if Fed is hiking
• Higher yields for 'good' reasons already priced at the index level, but sectoral opportunities remain
• Trade idea to consider
• Global Strategy
• Valuation Method and Risk Statement
• Required Disclosures
• UBS Global Research Disclaimer

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