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

Gilt yields rise after Brexit extension; Pound profits from dollar weakness; Portfolio risk drops on lower equity volatility

 

HIGHLIGHTS FOR THE WEEK ENDED APRIL 12

 
 

Gilt yields rise after Brexit extension

 

The yield on 10-year British government bonds rose 10 basis points in the week ending April 12, 2019, compared with only 5-6 basis points for their German and US counterparts. The bigger increase in the UK partly reflected the (temporary) relief provided by the extension of the Brexit deadline to October 31. Continental European and North American yield rises, on the other hand, were restrained by comments from the Federal Reserve and the European Central Bank, which both indicated that interest rates would remain on hold until at least the end of the year. Share prices and exchange rates, in contrast, were hardly moved by the news.

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Please refer to figure 4 of the current Multi-Asset Class Risk Monitor (dated Apr. 12, 2019) for further details.

 



Pound profits from dollar weakness

 

The British pound rose slightly against the US dollar in the week ending April 12, 2019. However, unlike the rise in Gilt yields, the pound’s rise reflected a weakness in its American rival, rather than the impact of Thursday’s postponement of Britain’s departure from the European Union. On the contrary, the pound hardly reacted to the announcement. This differed from previous market patterns, in which the value of the currency increased alongside bond yields and share prices, whenever concerns of a no-deal scenario were alleviated. However, the muted response from the FX rate also meant that predicted risk for GBP/USD fell to 7.41%—its lowest level since the beginning of 2016.


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Please refer to figure 6 of the current Multi-Asset Class Risk Monitor (dated Apr. 12, 2019) for further details.

 


Portfolio risk drops on lower equity volatility

 

Short-term risk in Axioma’s global multi-asset class model portfolio dropped 0.63% to 4.92% as of Friday, April 12, 2019. The decrease was almost entirely due to a 1.3% reduction in standalone equity volatility. As a consequence, the equity holdings saw the biggest decline in their share of overall portfolio volatility, from 93.5% to 91%. US Treasuries and investment-grade corporate bonds, meanwhile, maintained their risk-reducing properties, shaving a combined 3.5% off total volatility. The yen also kept up its inverse relationship with global stock markets, while its European equivalents remained mostly uncorrelated with other asset classes.


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Please refer to figures 7-10 of the current Multi-Asset Class Risk Monitor (dated Apr. 12, 2019) for further details.



 
 
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