Axioma Risk Monitor
AXIOMA RISK MONITOR
MULTI-ASSET CLASS EDITION

Treasury yields drift sideways…again
Pound drops as BoE tapers Gilt purchases
Portfolio risk falls on lower equity volatility
Eurozone sovereign spreads: it’s different this time

 

HIGHLIGHTS FOR THE WEEK ENDED JUNE 19

 
 

Treasury yields drift sideways…again

 

Global sovereign yields drifted sideways once more in the week ending June 19, 2020, gripped by the opposing forces of coronavirus fears and central bank support. Both share prices and Treasury rates rose—while credit spreads tightened—at the start of the week, as the Federal Reserve Bank began its long-awaited purchases of corporate bonds on Tuesday. However, the yield gains were erased over the second half of the week, after several US states announced surges in new COVID-19 cases, while the so-called R number—the number of new people infected by an already infected person—rocketed back to 2.88 in Germany. British Gilts were a notable exception, as their yields increased, due to slower-than-expected bond purchases from the central bank (see below).

20200110_Image 1.PNG

Please refer to figures 4 & 5 of the current Multi-Asset Class Risk Monitor (dated June 19, 2020) for further details.

 


Pound drops as BoE tapers Gilt purchases

 

The pound sterling dropped 1.4% against the US dollar in the week ending June 19, 2020, following an announcement from the Bank of England that it would reduce the size of its weekly asset purchases from £13.5bn to £4.5bn for the remainder of the year, despite raising the overall amount of the program by £100bn. The decision meant that newly issued government debt would no longer be automatically absorbed by the central bank, which led to a 4-basis point increase in the 10-year Gilt yield on Thursday. Short-horizon risk for GBP/USD remained elevated at just over 12%, reflecting the additional risk of a no-deal Brexit at the end of the year, and making the pound the second-riskiest developed currency in Europe, after the oil-dependent Norwegian krone.


20200110_Image 2.PNG

Please refer to figures 4 & 6 of the current Multi-Asset Class Risk Monitor (dated June 19, 2020) for further details.

 


Portfolio risk falls on lower equity volatility

 

Short-term risk in Qontigo’s global multi-asset class model portfolio dropped 2.5% to 15.4% as of Friday, June 19, 2020, due to a 5% reduction in standalone equity volatility. US equities were the main beneficiaries, seeing their share of overall portfolio risk go down by 3.7% to 56.5%. Non-US stocks, on the other hand, recorded a rise in their percentage risk contributions—though not in absolute terms—as share prices remained positively correlated with exchange-rate changes against the US dollar. The latter also affected non-USD fixed-income securities, as the FX effect outweighed local returns. US Treasuries were thus the only bond investment to actively reduce risk, as corporate-bond returns were also driven by the strong interaction of credit spreads with share prices.


20200110_Image 3.PNG

Please refer to figures 7-10 of the current Multi-Asset Class Risk Monitor (dated June 19, 2020) for further details.



Eurozone sovereign spreads: it’s different this time

 
  • Peripheral Eurozone issuers, such as Italy and Spain, saw their risk premia over German Bunds increase in the light of the extensive fiscal rescue packages required to deal with the fallout of the COVID-19 crisis
  • But large-scale central-bank buying meant that spreads widened much less than in the Eurozone debt crisis of 2011-12 or during the Italian government-deficit conflict in 2018
  • Yield premia on Spanish Bonos rose significantly less in the current environment, reflecting a much stronger fiscal position both compared with the Eurozone debt crisis and relative to its Mediterranean neighbour


20200110_Image 3.PNG

Please refer to the Fixed Income Chart of the Week for interactive charts.



 

 
 
Stay Connected
 
 

Events

Webinar | Qontigo Insight™ Q2 2020 Risk Review

Date: July 8, 2020
Time: 11:00 AM ET | 4:00 PM BST

Although equity markets seem to have recovered much of the ground they lost in Q1, volatility remains high, certain style factors have been behaving “badly” and dispersion of risk and return across countries and currencies is widening. In this webinar we will discuss all these aspects of the risk environment in the second quarter and more.


Register here >


Webinar Recording | Enhancing Tax Alpha Using Everyday Client Workflows

In this webinar, we showed how clients leverage Qontigo’s sophisticated tax-managed optimization and risk analytics capabilities to enhance their tax alpha. These techniques were demonstrated using four typical client workflows.

Watch the recording here >


Webinar Recording | Stress Testing the Economic Fallout of COVID-19

Stress testing has long been a powerful arrow in the hedge fund and asset manager’s quiver to test how their portfolios may react in extreme market, geopolitical or macro-economic events. In our webinar we stress tested the economic impact of COVID-19 by analyzing four separate scenarios.

Watch the recording here >


On the Blog

CDS: Examining the negative basis

In our Fixed Income Chart of the Week for 8 June 2020, we noted that the CDS basis for names in the Markit iTraxx Europe index had gone significantly negative in March, which struck us as very unusual.

The top 10 cross-asset correlations to watch

In many of our recent blog posts and webinars, we noted how the COVID-19 crisis had disrupted the long-established co-movements and interactions of major asset classes. Some flipped signs, many broke down, and a few remained remarkably stable. In this blog post, we take a look at some of the most notable asset-class pairs.

The shifting sands of sector risk… When low-volatility sectors become high-volatility — and vice versa

The coronavirus crisis has driven large changes in the relative risk of US sectors. Traditionally defensive sectors, such as Real Estate and Utilities, lost their defensiveness, while typically cyclical, high-beta sectors, such as Info Tech, turned more defensive.

Latest Research

Introducing STOXX® Factor and ESG-X Factor Indices: Get More From Your Premia Exposures

In this paper, Qontigo’s Applied Research Team presents the recently launched STOXX Factor and ESG-X Factor Indices. STOXX Factor Indices are designed for investors who want to reap factor premia while avoiding the noise that pervades many other such products that allow undesired exposures.

Insights

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