Axioma Risk Monitor
AXIOMA RISK MONITOR
MULTI-ASSET CLASS EDITION

Stocks rise and yields fall, underscoring opposing views on economic outlook
Gilt yields drop to lowest levels on record
Portfolio risk falls, but China drives up EM volatility

 

HIGHLIGHTS FOR THE WEEK ENDED JULY 10

 
 

Stocks rise and yields fall, underscoring opposing views on economic outlook

 

US Treasury yields fell to their lowest levels in more than two months in the week ending July 10, 2020, amid a surge in reported COVID-19 cases in some US states and large parts of Latin America. Equity markets, meanwhile, seemed less concerned, with US blue-chip indices ending the week almost 2% higher. These movements highlight yet again the ongoing disagreement between the two major asset classes regarding the expected shape of the economic recovery. Equity investors still appear to be banking on a so-called V-shaped rebound, fueled by extensive government and central-bank support. In contrast, their fixed-income colleagues expect a much slower turnaround, with a prolonged period of near-zero or negative interest rates and bond yields.

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Please refer to figure 4 of the current Multi-Asset Class Risk Monitor (dated July 10, 2020) for further details.

 


Gilt yields drop to lowest levels on record

 

British government bonds traded at their lowest interest rates on record in the week ending July 10, 2020, despite the announcement of fresh fiscal support measures and estimates that the government deficit could exceed £350bn for the year. Gilts with maturities of seven years and below now have negative yields, indicating that investors are not only willing to finance the public borrowing, but are also prepared to pay for the privilege. That said, a large part of the bill is likely to be footed by the central bank, and short-term interest-rate futures now imply one more rate cut to 0% over the course of 2021 and the possibility of the base rate turning negative.


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Please refer to figure 3 of the current Multi-Asset Class Risk Monitor (dated July 10, 2020) for further details.

 


Portfolio risk falls, but China drives up EM volatility

 

Short-term risk in Qontigo’s global multi-asset class model portfolio fell 0.6% to just under 12% as of Friday, July 10, 2020, reflecting a further decline in developed-market equity volatility. In contrast, the emerging-market portion of the portfolio saw its share of overall risk increase by two percentage points to 7.8%. The latter was mostly driven by the strong performance of the Chinese stock market, which gained almost 17% over eight days of consecutive profits—5.7% alone on Monday, July 6. Some of the benefits of lower share-price variation were also offset by the renewed co-movement of stock and bond prices, which led to a less negative correlation between the two, and thus reduced diversification.


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



 

 
 
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Events

Webinar | Qontigo Insight™ Q2 2020 Risk Review, APAC

Date: July 15, 2020
Time: 10:00 AM HKT | 11:00 AM JST

In this webinar, Olivier d'Assier will discuss various aspects of the risk environment in the second quarter and more.


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Webinar | Making Sense of the COVID-19 Crisis With Quantitative Tools

Date: July 29, 2020
Time: 11:00 AM ET | 4:00 PM BST

In this webinar, Christoph Schon demonstrates how quantitative tools, such as factor risk models and stress tests, can be used to make sense of the recent market environment.


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Webinar | Qontigo Insight™ Quarterly Multi-Asset Risk Review

Date: August 12, 2020
Time: 11:00 AM ET | 4:00 PM BST

Join this webinar to hear more about how this ongoing disconnect between bond markets and stock markets affected multi-asset class portfolio risk.


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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. 



 
 

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