Equity risk ticks-up in the US, Canada, Japan and Australia; Asset correlations climb in the US; Mexican peso strengthens against the US dollar

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




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.

201901041 first graphic.png

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%.

201901041 second graphic.png

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.

201901041 third graphic.png

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

Stay Connected


Look Back, Look Ahead: Q4 2018 Risk Review
Date: January 9, 2019
Time: 11:00 AM ET / 4:00 PM GMT

In this webinar, Melissa R. Brown, Managing Director of Applied Research, will review the risk environment during 2018, paying particular attention to the fourth quarter.  Register now.
Axioma Insight™ Q4 2018 Risk Review, APAC & Outlook for 2019
Date: January 10, 2019
Time: 10:00 AM HKT / 11:00 AM JST

In this webinar Olivier d’Assier will identify the key drivers of market risk in the previous quarter, draw some conclusions as to the nature of risk currently, and make present insight as to which sources of risk will be most influential in the current quarter. Register here.

On the Blog

Minimum Variance Has Delivered in This Downturn

One of the major advantages of minimum variance strategies is that the lower-than-market volatility and beta should pay off by offering protection when the market stumbles, as it has recently.

Crowded Trades Don’t Explain Managers’ Recent Pain

Many managers have taken a beating since early November and some attribute the widespread losses to the unwinding of crowded trades by managers who tightly control their risk exposures. But there is no evidence of that in the returns to Axioma style factors on which many investors tilt.

Plenty of Yellow Vests, but Few Yellow Flags

The recent Yellow Vest protests in France are a particularly striking example of the search for alternative political solutions in many countries around the world.


Latest Research

Crowded Trades Don't Explain Managers' Recent Pain

It has been a tough couple months for many managers, especially hedge funds. Some have speculated that there has been a large unwinding of crowded risk-factor positions. We do not see that in our factor returns, and instead propose a few other possible culprits.

The Year of the Central Banks
2019 will be a decisive year for three of the world’s biggest central banks. In this paper, we use the stress-testing capabilities of our Axioma Risk™ platform to examine the impact of rate hikes on a global multi-asset class portfolio, with a particular focus on equity and credit spread performance in response to a yield curve inversion.

In the News

Managers Prep to Automate More Functions in 2019

Asset managers are catching up on technology that had initially passed them by, says Sebastian Ceria, CEO of Axioma.

Share prices can rise even after dreaded yield curve inversion (log-in required)

The recent dip of the US five-year Treasury yield below the two-year rate has reignited fears of an overall curve inversion, which is usually seen as a precursor for an economic downturn.  


Axioma Risk Monitor

A Weekly Report on Market Risk

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.


MiFID II Statement: Axioma 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.

Axioma  17 State Street, 2700    New York  NY  10004  United States