Equity risk ticks-up in the US, Canada, Japan and Australia; Asset correlations climb in the US; Mexican peso strengthens against the US dollar
AXIOMA RISK MONITOR
MULTI-ASSET CLASS EDITION

US Treasury yields down after turbulent week; Yen extends gains amid safe-haven flows; Portfolio risk falls as diversification increases

 

HIGHLIGHTS FOR THE WEEK ENDED JANUARY 4

 
 

US Treasury yields down after turbulent week

 

US Treasury yields continued their decline in the week ending Jan. 4, 2019, as worries about a slowdown in global growth persisted. The 10-year benchmark rate temporarily dropped to 2.55%—its lowest level in almost 12 months—on Thursday, when Institute of Supply Management data indicated the slowest growth of manufacturing output since November 2016. Part of the move was reversed by better-than-expected labor market data on Friday. However, the Treasury bellwether yield still ended the week 8 basis points in the red. Meanwhile, on the other side of the Atlantic, the same global slowdown fears, combined with the threat of a hard Brexit and other political risks, depressed German Bund yields to their lowest levels since the run-up to the French presidential election in Spring 2017.

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Please refer to figure 4 of the current Multi-Asset Class Risk Monitor (dated Jan. 4, 2019) for further details.

 



Yen extends gains amid safe-haven flows

 

The Japanese yen extended its surge against the US dollar in the week ending Jan. 4, 2019, as global growth concerns fueled flows into safe-haven assets and currencies. The yen’s 2% gain was the largest among the world’s 10 biggest currencies, while both the euro and Swiss franc ended the week slightly in the red. The pound initially dropped 1% over ongoing Brexit concerns, but then recovered when risk appetites returned toward the end of the week. As a consequence of its steep ascent in value, short-horizon risk for JPY/USD also jumped by 0.3% to 6.37%.


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Please refer to figure 6 of the current Multi-Asset Class Risk Monitor (dated Jan. 4, 2019) for further details.

 


Portfolio risk falls as diversification increases

 

Short-term risk in Axioma’s global multi-asset class model fell 0.87% to 10.98% as of Friday, Jan. 4, 2019, reversing some of the big surge experienced in the preceding 2 weeks. The drop was almost entirely due to a significant decrease in stock market volatility, although equities still accounted for 97% of total portfolio risk. High quality fixed-income securities and non-USD assets, as well as gold, all provided active volatility reduction, as investors preferred save havens over riskier asset classes. The flight-to-quality environment was also reflected in a bigger diversification benefit, which exhibited a similar size as in previous periods of heightened geopolitical uncertainty, such as the onset of the US-Chinese trade war in March 2018 and the formation of the populist government in Italy in June 2018.


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Please refer to figures 7-10 of the current Multi-Asset Class Risk Monitor (dated Jan. 4, 2019) for further details.



 
 
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