Equity risk ticks-up in the US, Canada, Japan and Australia; Asset correlations climb in the US; Mexican peso strengthens against the US dollar
AXIOMA RISK MONITOR
MULTI-ASSET CLASS EDITION

Treasury curve steepens, as traders expect low rates to stay
Euro falls as risk premia rise, after German court ruling on ECB
Portfolio risk remains on downward trend

 

HIGHLIGHTS FOR THE WEEK ENDED MAY 8

 
 

Treasury curve steepens, as traders expect low rates to stay

 

Yields on short-dated US Treasuries fell to their lowest level on record in the week ending May 8, 2020, as total unemployment claims for the past seven weeks surpassed 33 million. The monetary policy-sensitive 2-year rate hit a record low of 0.13% on Thursday, as traders prepared for a prolonged period of ultra-low central bank rates, aimed at mitigating the impact of the COVID-19 crisis. Long-term yields, in contrast, ended the week slightly in the black, rising alongside share prices, as equity investors seemed to focus instead on the beneficial effects of the Federal Reserve’s asset-purchasing program. Corporate-bond risk premia also tightened slightly, once more mirroring the corresponding move in the stock market.

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Please refer to figure 3 of the current Multi-Asset Class Risk Monitor (dated May 8, 2020) for further details.

 


Euro falls as risk premia rise, after German court ruling on ECB

 

The euro dropped to its lowest level against the US dollar in more than six weeks in the week ending May 8, 2020, after Germany’s constitutional court ordered the government in Berlin to assess the “proportionality” of the European Central Bank’s purchases of government bonds. Even though the ruling does not relate to the new pandemic emergency purchase program, but rather the one already in place, it could still limit the central bank’s future ability to buy Eurozone sovereign debt. As a result, the risk premia on Italian and Spanish government bonds over German Bunds widened slightly, despite tighter spreads in the corporate market.

Meanwhile, currencies closely associated with the oil price, such as the Canadian dollar and the Norwegian krone, gained more than 1% against their American rival, as the “black gold” continued its recovery.


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Please refer to figure 6 of the current Multi-Asset Class Risk Monitor (dated May 8, 2020) for further details.

 


Portfolio risk remains on downward trend

 

Short-term risk in Qontigo’s global multi-asset class model portfolio remained on its downward trend, falling another 3.6% to 22.5% as of Friday, May 8, 2020. As in previous weeks, the decline was primarily driven by a further drop in equity volatility, which, in turn, reduced the covariance with other factors, such as foreign-exchange rates and credit spreads. This meant that corporate bonds and non-US sovereigns all saw their share of overall risk decline, while the contribution from US Treasuries remained stable around zero. The oil holding experienced the biggest drop in percentage risk contribution, from 6.5% to 5.2%, as its price completely decoupled from all other asset classes in the portfolio.


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Please refer to figures 7-10 of the current Multi-Asset Class Risk Monitor (dated May 8, 2020) for further details.



 
 
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