Morgan Stanley calls them “rolling bear markets”; to others they are just occasional sharp, sometimes harrowing, price drops across various asset classes which however fail to drag down the entire market.

Meanwhile, continued concerns around Italy have caused the Italian-German bond spread to trade at 5y highs and added pressure to European assets.

And since that may change if Morgan Stanley – which warned today that current market conditions are dangerously similar to what happened in the fall of 1987 – Bank of America notes that with most hedge costs still comfortably below long term median levels, it remains historically inexpensive to hedge.

To be sure, the chart above does not represent an exhaustive list of risk sources or at-risk assets, and in some cases multiple assets can be considered as barometers for a given risk (e.g., Trade wars, EM weakness).

He then calculated crash returns during these five periods for 35 cross-asset hedges relative to their current 3M 25-delta implied volatilities.  The results are as follows: NIKKEI and FTSE puts screen as best value for a US rates-led risk-off event NDX and S&P500 puts screen well for US Tech concerns SX7E and EURUSD puts rank as good value Italian sovereign hedges HSCEI and CADUSD puts rank best for hedging further EM downside Copper and HSCEI puts screen well for potential trade war escalation Overall, puts on EM equities (KOSPI, HSCEI, HSI and EEM) and commodity-linked assets (Aluminum, Copper and AUDUSD) screen as best value based on their average hedge benefit across the five risk-off periods we have identified And shown in table format: Finally, before showing the full hedging screen, it is worth noting that the Feb-18 risk-off episode in which US 10y rates rose by almost 60bps precipitating a sell-off in US equities (and an unraveling of the short VIX ETP complex), also had a large effect on the majority of assets in the BofA screen.

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