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 curve steepens in ‘risk-on’ environment; Pound rallies as ‘no-deal’ fears subside; Portfolio risk drops as volatility and correlations fall




US Treasury curve steepens in ‘risk-on’ environment


Long government bond yields rose in the week ending March 1, 2019, while US equity benchmarks recovered to levels last seen in October and November. The latter was mostly due to a surge in share prices on Friday, following a week of perceived progress in the ongoing US-Chinese trade talks, particularly the delay of a tariff hike planned for March 1. The short end of the US Treasury curve, on the other hand, remained subdued by a recent downward revision in interest-rate expectations, resulting in a slight overall steepening. The 10y-2y term spread rose to 0.22%—its widest level since the start of the year. On the other side of the Atlantic, Gilt yields climbed even further, buoyed by renewed hopes that the dreaded ‘no-deal’ Brexit could be avoided.

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Please refer to figure 3 of the current Multi-Asset Class Risk Monitor (dated Mar. 1, 2019) for further details.


Pound rallies as ‘no-deal’ fears subside


The pound sterling gained almost 1.5% against the US dollar in the week ending March 1, 2019, as concerns about a ‘no-deal’ Brexit receded. The British currency climbed to its highest level in more than 8 months, after Prime Minister Theresa May conceded that the UK’s exit process from the European Union could be temporarily put on hold to avoid a disorderly departure. Should no agreement be reached by March 12, members of Parliament will have the chance to decide whether the country should leave without a deal, or whether an extension of Article 50 should be sought. Short-horizon risk on the GBP/USD exchange rate also jumped by 0.2% to 7.6%.

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Please refer to figure 6 of the current Multi-Asset Class Risk Monitor (dated Mar. 1, 2019) for further details.


Portfolio risk drops as volatility and correlations fall


Short-term risk in Axioma’s global multi-asset class model portfolio dropped by 0.90% to 6.83% as of Friday, March 1, 2019. Most of the decline was due to a combination of lower equity volatility and a reduced co-movement of exchange rates with other asset returns. The risk reductions were, therefore, most notable in the non-USD categories, both equity and fixed income. Oil and gold also saw their volatility contributions fall by a combined 0.15%, due to lower correlations with share prices.


Please refer to figures 7-10 of the current Multi-Asset Class Risk Monitor (dated Mar. 1, 2019) for further details.

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