Here’s How to Hedge If Fed Disappoints Stocks, BofAML Says
- Low volatility signals investors may be underpricing risks
- Fed widely forecast to make third cut in rates this year
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Credit hedges and bearish bets on U.S. stocks are some of the trades worth considering if the Federal Reserve disappoints equity markets, according to Bank of America Merrill Lynch.
Low volatility across a range of asset classes signals investors may be underpricing risks, with the majority of traders expecting the Fed to lower its key rate on Wednesday, BofA equity-derivatives analysts including Gonzalo Asis and Nitin Saksena said. They recommend owning short-dated protection, in particular, suggesting bearish bets on the iShares iBoxx High-Yield Corporate Bond exchange-traded fund.