Interesting, I see different behaviors in my setup:

4.4 on lvl1, 4.15 lvl2, trusty lvl1 qemu:
/proc/cpuinfo in lvl2 contains:
  bugs            : cpu_meltdown spectre_v1 spectre_v2 l1tf
(note missing mds, hence "Not Affected")

4.4 on lvl1, 4.15 lvl2, xenial lvl1 qemu:
/proc/cpuinfo in lvl2 contains:
  bugs            : cpu_meltdown spectre_v1 spectre_v2 spec_store_bypass l1tf 
mds

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https://bugs.launchpad.net/bugs/1829555

Title:
  nested virtualization w/first level trusty guests has odd MDS behavior

Status in linux package in Ubuntu:
  Confirmed
Status in qemu package in Ubuntu:
  New

Bug description:
  When nested kvm virtualization is used (with host-passthrough), if the
  first level guest is a trusty vm, odd behavior is seen in the second
  level guest:

    host os:
    disco/5.0.0-15.16-generic/qemu 1:3.1+dfsg-2ubuntu3.1
    contents of /sys/devices/system/cpu/vulnerabilities/mds:
       Mitigation: Clear CPU buffers; SMT vulnerable

    1st level vm:
    trusty/4.4.0-148.174~14.04.1-generic/qemu 2.0.0+dfsg-2ubuntu1.46
    contents of /sys/devices/system/cpu/vulnerabilities/mds:
      Mitigation: Clear CPU buffers; SMT Host state unknown

    2nd level vm:
    bionic/4.15.0-50.54-generic
    contents of /sys/devices/system/cpu/vulnerabilities/mds:
      Not affected

  This behavior is not seen when the first level guest is a xenial or
  bionic vm (same bare metal hardware):

    1st level vm:
    bionic/4.15.0-50.54-generic/qemu 1:2.11+dfsg-1ubuntu7.13
    contents of /sys/devices/system/cpu/vulnerabilities/mds:
      Mitigation: Clear CPU buffers; SMT Host state unknown

    2nd level vm:
    bionic/4.15.0-50.54-generic
    contents of /sys/devices/system/cpu/vulnerabilities/mds:
      Mitigation: Clear CPU buffers; SMT Host state unknown

  and:

    1st level vm:
    xenial/4.4.0-148.174-generic/qemu 1:2.5+dfsg-5ubuntu10.39
    contents of /sys/devices/system/cpu/vulnerabilities/mds:
      Mitigation: Clear CPU buffers; SMT Host state unknown

    2nd level vm:
    bionic/4.15.0-50.54-generic
    contents of /sys/devices/system/cpu/vulnerabilities/mds:
      Mitigation: Clear CPU buffers; SMT Host state unknown

  It's not clear whether this is an issue with linux/kvm or qemu in trusty.
  --- 
  ApportVersion: 2.14.1-0ubuntu3.29
  Architecture: amd64
  AudioDevicesInUse:
   USER        PID ACCESS COMMAND
   /dev/snd/controlC0:  ubuntu     2239 F.... pulseaudio
  DistroRelease: Ubuntu 14.04
  HibernationDevice: RESUME=UUID=4fa9460d-7ed4-49db-8e22-86a5107d0062
  InstallationDate: Installed on 2019-02-14 (92 days ago)
  InstallationMedia: Ubuntu 14.04.5 LTS "Trusty Tahr" - Release amd64 (20160803)
  Lsusb:
   Bus 001 Device 002: ID 0627:0001 Adomax Technology Co., Ltd 
   Bus 001 Device 001: ID 1d6b:0002 Linux Foundation 2.0 root hub
   Bus 004 Device 001: ID 1d6b:0001 Linux Foundation 1.1 root hub
   Bus 003 Device 001: ID 1d6b:0001 Linux Foundation 1.1 root hub
   Bus 002 Device 001: ID 1d6b:0001 Linux Foundation 1.1 root hub
  MachineType: QEMU Standard PC (i440FX + PIIX, 1996)
  Package: qemu 2.0.0+dfsg-2ubuntu1.46
  PackageArchitecture: amd64
  ProcEnviron:
   TERM=screen
   PATH=(custom, no user)
   XDG_RUNTIME_DIR=<set>
   LANG=en_US.UTF-8
   SHELL=/bin/bash
  ProcFB: 0 qxldrmfb
  ProcKernelCmdLine: BOOT_IMAGE=/boot/vmlinuz-4.4.0-148-generic 
root=UUID=9a35107e-83fa-4010-81e1-235a4ea14fe6 ro quiet splash vt.handoff=7
  ProcVersionSignature: User Name 4.4.0-148.174~14.04.1-generic 4.4.177
  RelatedPackageVersions:
   linux-restricted-modules-4.4.0-148-generic N/A
   linux-backports-modules-4.4.0-148-generic  N/A
   linux-firmware                             1.127.24
  RfKill:
   
  Tags:  trusty trusty
  Uname: Linux 4.4.0-148-generic x86_64
  UpgradeStatus: No upgrade log present (probably fresh install)
  UserGroups: adm cdrom dip libvirtd lpadmin plugdev sambashare sudo
  _MarkForUpload: True
  dmi.bios.date: 04/01/2014
  dmi.bios.vendor: SeaBIOS
  dmi.bios.version: 1.12.0-1
  dmi.chassis.type: 1
  dmi.chassis.vendor: QEMU
  dmi.chassis.version: pc-i440fx-bionic
  dmi.modalias: 
dmi:bvnSeaBIOS:bvr1.12.0-1:bd04/01/2014:svnQEMU:pnStandardPC(i440FX+PIIX,1996):pvrpc-i440fx-bionic:cvnQEMU:ct1:cvrpc-i440fx-bionic:
  dmi.product.name: Standard PC (i440FX + PIIX, 1996)
  dmi.product.version: pc-i440fx-bionic
  dmi.sys.vendor: QEMU

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