Axioma Risk Monitor

Treasury curve steepens on inflation concerns
Exchange rates and share prices continue their negative interaction
Portfolio risk falls as bonds and stocks diverge once more




Treasury curve steepens on inflation concerns


Yields on long-dated US Treasuries climbed to their highest levels in almost three months in the week ending August 28, 2020, following an announcement from the Federal Reserve Bank on Thursday that it would target an “average” inflation of 2%, instead of the previous fixed goal of 2%. Higher inflation tends to erode asset returns over time, which is why longer-maturity securities reacted more strongly to the news. That said, the more lenient monetary-policy stance required for this also implies that short-term rates are likely to stay at their current low levels for longer, which is why yields up to 5 years remained flat, while the rest of the curve steepened. It also explains why last week’s issuance of 2, 5 and 7-year paper was still met with relatively healthy demand, as opposed to the weak 30-year auction only two weeks earlier.

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Please refer to Figures 3 & 4 of the current Multi-Asset Class Risk Monitor (dated August 28, 2020) for further details.


Exchange rates and share prices continue their negative interaction


The US dollar resumed its recent downward trend in the week ending August 28, 2020, as American blue-chip stock indices posted a straight run of five positive daily returns, reaching yet more record highs. This negative interaction extends the pattern of opposing share-price and exchange-rate movements, which has been dominant since the beginning of March. The British pound was one of the biggest beneficiaries of the ongoing dollar weakness, gaining 2% on its American rival and reaching its highest level since December last year. However, the strengthening exchange rate weighed on large UK companies, as many saw their share prices decline—in contrast to their North American and Continental European counterparts.

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Please refer to Figure 6 of the current Multi-Asset Class Risk Monitor (dated August 28, 2020) for further details.


Portfolio risk falls as bonds and stocks diverge once more


Short-term risk in Qontigo’s global multi-asset class model portfolio dropped another 0.8% to 6.3% as of Friday, August 28, 2020, as stock and bond prices once again moved into opposite directions. The decreases in percentage risk contributions were most notable for non-USD fixed-income securities, where losses due to higher risk-free rates were bolstered by exchange-rate gains against the weakening US dollar. Corporate securities reaped an added benefit from a decoupling of equity and credit-spread returns, as the latter no longer mirrored the continued rise in share prices.

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Please refer to Figures 7-10 of the current Multi-Asset Class Risk Monitor (dated August 28, 2020) for further details.



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Webinar | How to Invest in the UN Sustainable Development Goals (SDGs)

Date: September 10, 2020
Time: Select Preferred Presentation

How do you identify SDG investments and what are Sustainable Development Investments? Join us as we tackle these questions and more with the Sustainable Development Investments Asset Owner Platform (SDI AOP), comprised of four leading global asset owners: APG, AustralianSuper, British Columbia Investment Management Corporation and PGGM.

Acting as exclusive distributors for the SDG data that has been developed by the SDI AOP, we invite all asset owners and asset managers* to learn about the initiative in this webinar.

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Webinar Recording | Qontigo Insight™ Quarterly Multi-Asset Risk Review

Watch 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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