Banks Are Hawking US Recession Hedges Tied to Both Stocks, Bonds

Investors’ lingering fears of recession have prompted Wall Street banks to hawk a complex hedge: exotic options that pay off if stocks fall and bond yields also drop.

These options are relatively cheap now, in part, because correlations between equities and rates have been low. But investors should also consider them because US stock valuations look stretched by many measures, according to banks including JPMorgan Chase & Co. and Citigroup Inc. On top of that, questions about how soon the Federal Reserve will start cutting rates could result in wild market swings.

Buying the options amounts to betting that ...