Axioma Risk Monitor
AXIOMA RISK MONITOR
MULTI-ASSET CLASS EDITION

Treasury yields at record lows, as US-China tensions spike
The USD’s safe-haven status fades
Portfolio risk down, as equity volatility softens further
Corporate Credit Sector Relative Value YTD and since peak of Covid

 

HIGHLIGHTS FOR THE WEEK ENDED JULY 24

 
 

Treasury yields at record lows, as US-China tensions spike

 

Parts of the US Treasury curve fell to their lowest levels on record in the week ending July 24, 2020, as investors once again sought the relative safety of government debt, amid escalating tensions between China and the United States and a surge in unemployment claims. The 5-year rate ended the week at 0.27%, only marginally above the Federal Reserve Bank’s fed funds target rate corridor of 0-0.25%. This indicates that traders expect interest rates to remain at their current low levels for a prolonged period. That said, US Treasury yields have yet to venture into negative territory, which contrasts with most of Europe, where central-bank rates and/or sovereign yields are now firmly below zero.

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Please refer to Figures 3 & 4 of the current Multi-Asset Class Risk Monitor (dated July 24, 2020) for further details.

 


The USD’s safe-haven status fades

 

The Dollar Index — a measure of the USD’s value against a basket of foreign currencies — dropped to its lowest value since September 2018 in the week ending July 24, 2020, as rising geopolitical tensions, new COVID-19 cases and surging unemployment weighed on global share prices. The parallel movement of both US dollar and the stock market constituted a break from the dominant pattern observed since early March, in which the dollar had been the safe haven of choice, whenever share prices declined. The broad-based depreciation of the greenback against most of its major competitors signals that concerns about the outlook for the US economy, specifically, may be returning to the forefront of investors’ minds. The euro was one of the biggest beneficiaries, reaching a 22-month high against its American rival, after EU leaders agreed on a €750bn coronavirus rescue fund.


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Please refer to Figure 6 of the current Multi-Asset Class Risk Monitor (dated July 24, 2020) for further details.

 


Portfolio risk down, as equity volatility softens further

 

Short-term risk in Qontigo’s global multi-asset class model portfolio fell another 0.6% to 10.4% as of Friday, July 24, 2020, following a further 2% decline in standalone equity volatility. The risk reduction was most noticeable in the US equity bucket, which saw its share of overall portfolio volatility drop by almost 5 percentage points to 49.6%. However, this was partly offset by increases in the risk contributions of non-US sovereign and investment-grade corporate bonds, as a stronger co-movement with foreign-exchange rates raised their perceived volatilities. Gold also exhibited a higher correlation with other high-quality assets amid the increased safe-haven buying.


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Please refer to figures 7-10 of the current Multi-Asset Class Risk Monitor (dated July 24, 2020) for further details.



Corporate Credit Sector Relative Value YTD and since peak of Covid

 
  • Every significant relative gainer or loser reverted post peak of the crisis. This indicates that each significant sector deviation relative to the average of all corporates was an over-reaction.
  • The best sector trades YTD were long Healthcare or IT/ short Real Estate, Insurance or Energy.
  • The best sector trades since peak of crisis were long Energy/ short Real Estate or Insurance; or long Consumer Discretionary/ short Insurance.
  • Most sectors maintained their relative value despite over-reacting initially.
  • Insurance and Real Estate are the exception: their story flipped from relative positive at the peak to relative negative since the peak.


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



 

 
 
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Events

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.


Register here >


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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