Axioma Risk Monitor

Sovereign yields and credit spreads unmoved amid opposing forces
Pound drops as Brexit fears intensify
Portfolio risk falls, as asset volatilities decline




Sovereign yields and credit spreads unmoved amid opposing forces


Sovereign yields around the globe continued to drift sideways in the week ending May 15, 2020, held in check by disappointing economic data and rising geopolitical tensions on one side, and the anticipated benefits of reopened economies and fiscal and monetary rescue packages on the other. The 10-year US benchmark rate climbed on Monday, as several European countries and US states unveiled, or began to implement, plans to lift elements of their lockdown restrictions. However, these gains were more than offset over the rest of the week by higher-than-expected unemployment claims, record drops in industrial production and retail sales, and increasingly hostile rhetoric from the White House against China.

Meanwhile, risk premia in the corporate-bond market also remained mostly flat, despite the onset of the Federal Reserve’s eagerly awaited ETF-buying program, as price gains in the respective listed funds were not reflected in the spreads of the underlying bond segment.

20200110_Image 1.PNG

Please refer to figures 4 and 5 of the current Multi-Asset Class Risk Monitor (dated May 15, 2020) for further details.


Pound drops as Brexit fears intensify


The British pound depreciated 2.5% against the US dollar in the week ending May 15, 2020, as Brexit talks between the United Kingdom and the European Union seemingly ended in deadlock. Negotiators on both sides acknowledged that discussions had stalled over disagreements on common standards, which the EU wants the UK to adopt to ensure a level playing field. British Prime Minister Boris Johnson had previously threatened to walk away, if no sufficient progress was achieved ahead of the European Council meeting scheduled for mid-June, thus raising the risk of the transition period ending with no deal by the end of the year.

20200110_Image 2.PNG

Please refer to figure 6 of the current Multi-Asset Class Risk Monitor (dated May 15, 2020) for further details.


Portfolio risk falls, as asset volatilities decline


Short-term risk in Qontigo’s global multi-asset class model portfolio fell 2.4% to 20.1% as of Friday, May 15, 2020, due to declining standalone volatilities across all security types and risk factors. Oil once again experienced the biggest drop in percentage risk contribution from 5.2% to 4.5%, primarily from lower price variation. US corporate bonds also saw their share of total portfolio volatility reduced by 0.6%, due to a combination of smaller interest-rate and credit-spread fluctuations. Their non-USD counterparts, on the other hand, did not benefit to the same extent, as exchange rates remained positively correlated with both equity and credit-spread returns. US Treasuries and the Japanese yen, meanwhile, continued to provide the greatest diversification opportunities, as they remained uncoupled from stock markets.

20200110_Image 3.PNG

Please refer to figures 7-10 of the current Multi-Asset Class Risk Monitor (dated May 15, 2020) for further details.

Bank funding risk returns to normal after a brief spike

  • The 3Month LIBOR-OIS spread has come back as rapidly as it widened. It is a measure of bank credit risk and liquidity of lending.
  • The COVID-19 related widening was the largest since the Global Financial Crisis, but reached only half those levels.
  • The spread is back to pre-COVID levels.

20200110_Image 3.PNG

Please refer to the Fixed Income Chart of the Week for further details.


Stay Connected


Webinar | Inquire UK: Investment implications of Covid-19

Date: May 20, 2020
Time: 2:30 PM GMT

Join us on Wednesday for a lively discussion hosted by Inquire on the investment implications of Covid-19. We will be delving deeper into the changes in the 2020 risk landscape, and the response of quantitative portfolio managers.

Register here >

Webinar | Qontigo Insight™ Quarterly Multi-Asset Risk Review

Date: May 27, 2020
Time: 11:00 AM ET | 4:00 PM GMT

In this webinar, Christoph V. Schon, Qontigo’s Executive Director of Applied Research, explains how this has rendered traditional diversification strategies ineffective and led to surge in multi-asset class portfolio risk.

Register here >

On the Blog

Oil in a multi-asset portfolio: If you’re looking to reduce risk, look elsewhere…

Investing in oil as part of a multi-asset strategy can be risky for two reasons: first, the oil price is very volatile, and, second, because it is usually strongly correlated with the stock market.

The colossal collapse of Mortgage REITs: An omen of bad things to come?

US Mortgage Real Estate Investment Trusts (Mortgage REITs) have been crushed by the coronavirus crisis, substantially underperforming the US equity market as a whole, as their risk has skyrocketed to levels not seen by any US industry in at least three decades.

Latest Research

Mean-Reversion and Market Recoveries: Stocks Hit Hardest First Tend to Outperform… Will Covid-19 Follow the Pattern?

Do equities that suffer the greatest losses in the initial stages of a major market downturn subsequently outperform during the recovery? Here we examine the 10 largest US equity downturns of the past 38 years along with the current Covid-19 market crisis focusing on the performance of the worst performing quintile during the initial downturn.


Qontigo Commentary: Coronavirus’ Impact on Markets

Over the past few months, the world has been greatly affected by the extensive spread of the COVID-19 virus. To help our subscribers better understand the impact of these events, Qontigo's Applied Research team put together a collection of market analysis and commentary.

Axioma Risk Monitor

The Axioma Risk Monitor reports use Axioma’s solutions to bring you insights on trends in market and portfolio risk. You can subscribe to both the multi-asset class and equity edition here.

Qontigo ROOF Scores

Qontigo's ROOF Scores were created to quantify market sentiment — bullish or bearish? ROOF is an acronym for Risk-On/Risk-Off market conditions; the Scores are calculated from the factor returns to eight style factors from Axioma’s fundamental factor risk models, plus two indicators of changing market volatility. 


MiFID II Statement: Axioma (now part of Qontigo) believes that the research we provide falls outside the purview of the MiFID II regulations, which are intended to provide transactional transparency and unbundle research and trading costs. Axioma does not provide recommendation research, is not a regulated company and our business is not transactional. As such, we do not believe that we are subject to MiFID II regulation. For more information, please click here: MiFID II Statement.

Axioma  17 State Street, 2700    New York  NY  10004  United States