MAC Monitor — April 4, 2022

Multi-Asset Class Risk Monitor Highlights | Week Ended April 1, 2022

  • Treasury curve inverts over concerns of monetary-policy impact on economic growth
  • Higher rates give euro a boost
  • Portfolio risk drops as equity volatility continues to decline

Treasury curve inverts over concerns of monetary-policy impact on economic growth

Short-term US Treasury yields rose above long-term rates for the first time since August 2019 in the week ending April 1, 2022, indicating growing concerns that tighter monetary policy could hurt economic growth in the long run. The monetary policy-sensitive 2-year benchmark climbed to a 3-year high of 2.44%, while the 10-year bellwether dropped 10 basis points to 2.38%. Short-term interest-rate futures currently predict a peak in the federal funds rate of around 3% by the middle of next year, whereas the highest point on the US Treasury curve at present is just above 2.6%. A yield curve inversion has traditionally heralded a recession of the US economy, but historical evidence also suggests that it can take anywhere between six months and two years before GDP growth turns negative.

Please refer to Figure 3 of the current Multi-Asset Class Risk Monitor (dated April 1, 2022) for further details.

Higher rates give euro a boost

The euro gained 0.5% against the US dollar and more than 1% against the British pound in the week ending April 1, 2022, as traders once more upped their interest rate expectations for the single-currency area. The 2-year German Bund yield briefly broke above 2% for the first time since 2014 , following the release of inflation data on Wednesday, which showed that German consumer prices had risen 2.5% in March, lifting the year-on-year increase to a four-decade high of 7.3%. Meanwhile, news that Russia had started redeploying troops away from the Ukrainian capital Kyiv boosted share prices across the continent, with the region-wide STOXX® Europe 600 gaining 1.1%.

Please refer to Figure 6 of the current Multi-Asset Class Risk Monitor (dated April 1, 2022) for further details.

Portfolio risk drops as equity volatility continues to decline

Predicted short-term risk in Qontigo’s global multi-asset class model portfolio dropped another 1.4% to 12.6% as of Friday, April 1, 2022, driven by a further decline in stock market fluctuations. Emerging-market equities experienced the biggest reduction in their percentage risk contribution, as their standalone volatility plummeted by almost 4 percentage points to 29%. Non-USD government bonds also benefitted from a lower correlation of share prices with exchange rates against the US dollar and a more inverse interaction of stock and bond returns.

Please refer to Figures 7-10 of the current Multi-Asset Class Risk Monitor (dated April 1, 2022) for further details.