Multi-Asset Class Risk Monitor Insights

Week of April 14

This week, we take a look at how Geopolitical worries push Treasury yields lower and how Currency risk declines as dollar weakens versus pound and yen. 

In the US this week, prices of so-called “safe-haven” assets, like low-risk government bonds and gold, rose sharply during the four-day trading week ending Thursday, April 13, 2017, as tension between Russia and the West increased over Syria and the US sent an aircraft carrier group to the Korean peninsula. US Treasuries outperformed most of their global peers with the 10-year benchmark rate declining 14 basis points to its lowest level since the middle of November last year. The gold price also climbed to its highest level since the US presidential election, ending the week up 2.5%.

European yields likewise declined, though a lot less than their American counterparts. The 10-year Bund and Gilt benchmarks both ended the short week 4 basis points lower. French yields, on the other hand, rose as uncertainty about the upcoming presidential election once again increased. The spread between German and French sovereign yields reached a high of 0.77% on Tuesday, as fresh opinion polls showed a sudden surge in votes for left-wing candidate Jean-Luc Mélenchon. A second-round showdown between Mr Mélenchon and far-right leader Marine Le Pen is considered the greatest risk by financial markets, though it is still seen as quite unlikely.

We also observed how Currency risk declines as the dollar weakens versus pound and yen. Short-horizon risk versus the USD fell sharply for EUR, GBP, JPY and CHF. The biggest decline in predicted volatility of -0.43% could be observed for the pound, while the other three currencies each saw their risk fall by around 0.25%. The yen recorded the biggest increase in value, gaining 1.37% versus the greenback during the week ending Thursday, April 13, 2017. The pound was also up 1%, whereas the euro remained more or less flat.

Portfolio risk has also been driven down by lower stock volatility this week. Short-term risk in Axioma’s global multi-asset class model portfolio declined even further to 3.53% as of Thursday, April 13, 2017, from 3.88% the week before. The decrease was mostly due to lower stock volatility, with US equities accounting for 0.30% of the total change of 0.35%. Average standard deviation of the equity portion of the portfolio is currently 5.24% (including FX effects), down from more than 6% at the end of the previous week. The number corresponds to the 60-day volatility of the FTSE All World index, which now stands at a 21-month low.

Using Axioma’s multi-asset class risk models, we bring you a weekly summary of the current state of market risk and how it might be impacting investors’ portfolios. To receive these weekly highlights directly in your inbox, sign up here.

Christoph Schon, CFA, CIPM

Christoph Schon is the Executive Director, Applied Research for EMEA at Axioma, where he generates insights into recent risk trends with a particular focus on fixed income and multi-asset class analysis. Christoph has been in the portfolio risk and performance analysis space for more than 10 years, having previously worked for Lehman Brothers/Barclays POINT and UBS Delta.

You might also be interested in

Equity Risk Monitor Insights

Once a week, we publish a summary of the highlights from the prior week, using Axioma’s risk models and analytic tools to transform data into information.

Posted 04.17.17 Melissa R. Brown, CFA