News & Research

With inflation at multi-decade highs, a tightening of monetary policy appears inevitable. Since November, a growing number of central banks — most prominently the Bank of England — have begun to raise rates, and the Federal Reserve is expected to follow suit in March.

As 2021 draws to a close, the focus inevitably shifts to the year ahead. In terms of investment opportunities, we conclude that high yield bonds offer the most promising risk-return characteristics in 2022 for all examined scenarios.

Despite ongoing central-bank claims that the current spike in inflation is “transitory,” the recent surge in oil prices to 7-year highs, combined with ongoing supply shortages across many industries, suggests otherwise.

The votes from Germany’s federal election have been counted, but the result was far from decisive. We may be weeks, or even months, away from knowing who will succeed Angela Merkel as the next chancellor.

In our latest whitepaper, Inflation and Its Impact on the Stock-Bond Correlation, we examined the historical interaction of equity and bond-market returns over the last 60 years to identify the main triggers of shifts in their relative directions—especially situations that might prompt the two asset classes to persistently move together. We identified three possible scenarios.

In this paper, we examine the historical interaction of equity and bond-market returns—both in the recent past and over the last 70 years—in an effort to identify the main triggers of shifts in their relative directions.

Share prices continued to climb to record highs, despite another surge in US consumer prices. This may seem counterintuitive, but a comparison with the aftermath of the global financial crisis reveals that it may not be that unusual after all. At the same time, history also indicates that there could still be choppy times ahead—especially for the Energy, Materials, and Industrials sectors, which are likely to be adversely affected by falling prices for commodities and consumer goods.

Credit risk premia have been at pre-crisis levels for a couple of months now, and so has predicted risk for corporate bond portfolios. Low spread volatility and the recent surge in sovereign yields means that risk-free interest rates have once more become the dominant return driver for investment-grade securities.

Standalone equity volatility in Qontigo’s global multi-asset class model portfolio has dropped by a third since the beginning of February—yet the current predicted risk for the total portfolio of 6.6% is only marginally lower than the 7.2% of 11 weeks ago. The main reasons for this are that share and bond prices are no longer negatively correlated, while the recent dollar weakening has once more amplified the returns of non-US stocks.

Much has been written about the spectacular comeback of Value stocks. But has this also been reflected in the credit market? The steep rise of the Value factor from the Axioma Factor-based Fixed Income Risk Model over the past 14 months seems to suggest that the answer is yes.

Foreign-exchange rates can be very volatile. Investors looking to bet on markets outside their own base currency must decide whether to embrace or mitigate the additional risk. In this paper, we propose a stress-testing framework that can help investors with the decision whether “to hedge or not to hedge”, given their assumptions on expected returns and cross-asset correlations.

Rising interest rates are customarily accompanied by gains in stock prices and increasing consumer prices, which are usually seen as signs of a healthy, growing economy. There may come a point, however, when (expected) inflation becomes so high that the central bank may feel compelled to tighten monetary conditions.