MAC Monitor — April 26, 2021

Multi-Asset Class Risk Monitor Highlights | Week Ended April 23, 2021

  • Bund yields steadied by balanced ECB outlook
  • Dollar resumes weakening trend
  • Portfolio risk falls, as equity rally stalls

Bund yields steadied by balanced ECB outlook

German Bund yields remained steady in the week ending April 23, 2021, as the European Central Bank maintained the -0.5% deposit rate at its monthly meeting on Thursday. The rate setters also reiterated their stance that the bank’s €1.85tn emergency fund could be either expanded or not used fully, depending on its success in reinvigorating economic and consumer-price growth. That said, long-term rates have risen substantially since the start of the year, when the 10-year benchmark still yielded less than a central-bank deposit, while investors effectively paid the German government for lending it their money for 30 years. Since then, ultra-long rates have turned positive once more, whereas a 10-year investment now yields -0.25%.

Please refer to Figures 3 & 4 of the current Multi-Asset Class Risk Monitor (dated April 23, 2021) for further details.

Dollar resumes weakening trend

The US dollar index depreciated 0.8% against a basket of foreign currencies in the week ending April 23, 2021, taking the total loss for the month to -2.6%. The STOXX® USA 900, in contrast, is up almost 6% for April, meaning that the greenback once more resumed its countermovement with share prices, which prevailed for most of 2020. The recent dollar weakness was relatively widespread, with month-to-date losses against most of its major rivals ranging from -2% to -3%. The British pound was the notable exception, having moved mostly sideways since hitting a 34-month high in late February. On the flipside, its recent low volatility meant that predicted short-term risk for the GBP/USD exchange rate is now at just under 9%, its lowest level since mid-March 2020.

Please refer to Figure 6 of the current Multi-Asset Class Risk Monitor (dated April 23, 2021) for further details.

Portfolio risk falls, as equity rally stalls

Short-term risk in Qontigo’s global multi-asset class model portfolio dropped 0.8% to 6.6% as of Friday, April 23, 2021, as stock markets took a breather after four weeks of steady gains. The effect was most notable in the US equity category, which saw its share of overall portfolio volatility decline by 0.8% to 28.6%. USD-denominated investment-grade corporate bonds recorded the biggest drop in their percentage risk contribution from 3.8% to 2.8%, thanks to low correlations of risk-free rates with both credit spreads and share prices. The weakened interaction of the latter two also benefitted high-yield securities, which once again exhibited the lowest volatility contribution relative to their market-value weight.

Please refer to Figures 7-10 of the current Multi-Asset Class Risk Monitor (dated April 23, 2021) for further details.