MAC Monitor — April 19, 2022

Multi-Asset Class Risk Monitor Highlights | Week Ended April 14, 2022

  • Treasury curve re-steepens as core inflation decelerates
  • Ukraine war weighs on euro
  • Lower equity volatility reduces portfolio risk

Treasury curve re-steepens as core inflation decelerates

Long-term borrowing rates once more climbed above medium-term yields in the week ending April 14, 2022, reversing a partial inversion of the US Treasury curve, which had persisted for four weeks. The 10-year bellwether rose 10 basis points to 2.83%—a level last seen at the end of 2018—as American consumer prices were reported to have grown at a 40-year record pace of 8.5% in the 12 months ending March. The 5-year point, meanwhile, remained largely stable, whereas the monetary policy-sensitive 2-year declined 0.08%, as traders adjusted their rate-hike expectations to the downside. The latter move was triggered by a deceleration in monthly core inflation, which excludes more volatile components such as food and energy costs. This, in turn, should give the Federal Reserve more room to balance its currently conflicting mandates of keeping prices stable while promoting maximum employment.

Please refer to Figure 3 of the current Multi-Asset Class Risk Monitor (dated April 14, 2022) for further details.

Ukraine war weighs on euro

The euro dropped below $1.08 for the first time since May 2020, following the European Central Bank’s monthly meeting on April 14, 2022. The governing council left interest rates unchanged and stuck to its existing timetable of gradually winding down its asset purchases by the end of the third quarter, despite inflation in the single-currency area hitting 7.5%. In the Q&A session following the monetary-policy announcement, President Christine Lagarde clarified that the bank would “complete net asset purchases first, and some time after that decide interest rate hike and subsequent hikes.” She further noted that the “downside risks to the growth outlook have increased substantially as a result of the war in Ukraine.”

Please refer to Figure 6 of the current Multi-Asset Class Risk Monitor (dated April 14, 2022) for further details.

Lower equity volatility reduces portfolio risk

Predicted short-term risk in Qontigo’s global multi-asset class model portfolio dropped 1 percentage point to 11.3% as of Thursday, April 14, 2022, driven primarily by a further decline in share-price volatility, while cross-asset correlations remained largely unchanged. Risk reductions were, therefore, mostly limited to the equity buckets, which saw their combined share of total volatility fall by 1.6% to 72.6%. US Treasuries and the Japanese yen, meanwhile, remained uncorrelated with stock markets, while holding gold actively reduced overall portfolio risk.

Please refer to Figures 7-10 of the current Multi-Asset Class Risk Monitor (dated April 14, 2022) for further details.