MAC Monitor — May 10, 2021

Multi-Asset Class Risk Monitor Highlights | Week Ended May 7, 2021

  • Treasury yields fall despite call for higher rates
  • Dollar weakens as stocks hit record high
  • As equity volatility continues to fall, interaction with FX rates intensifies

Treasury yields fall despite call for higher rates

Long-term US sovereign yields declined in the week ending May 7, 2021, despite warnings from Treasury Secretary Janet Yellen that “interest rates will have to rise somewhat” to prevent the economy from overheating. The former Federal Reserve chair’s remarks—delivered at an event hosted by The Atlantic magazine on Tuesday—seemed to contradict the central bank’s current stance that it would not raise rates before the US economy had reached full employment. Yellen downplayed her comments later in the day at The Wall Street Journal’s CEO forum, noting that she appreciated the Fed’s independence, while adding, “I don’t think there’s going to be an inflationary problem, but if there is the Fed can be counted on to address it.”

Please refer to Figure 4 of the current Multi-Asset Class Risk Monitor (dated May 7, 2021) for further details.

Dollar weakens as stocks hit record high

The US dollar depreciated 1.1% against a basket of foreign currencies in the week ending May 7, 2021, as American large-cap benchmarks rose by a similar amount, rising to yet another record high. The so-called Dollar Index descended to a 10-week low on Friday, taking the total loss since the end of March to -3.2%. The STOXX® USA 900 blue-chip index, meanwhile, was up 6% quarter-to-date, thus continuing the pattern of rising share prices and weakening currency, which had been prevalent since March last year. The greenback posted losses against all its major rivals, ranging from -0.7% against the Japanese yen to -1.6% versus the Swedish krona. The move also coincided with a drop in predicted short-term risk to levels last seen in early March 2020.

Please refer to Figure 6 of the current Multi-Asset Class Risk Monitor (dated May 7, 2021) for further details.

As equity volatility continues to fall, interaction with FX rates intensifies

Short-term risk in Qontigo’s global multi-asset class model portfolio fell slightly to 5.7% as of Friday, May 7, 2021, compared with just over 6% the week before. Most of the decline was once again due to a further reduction in standalone equity volatility, combined with a weaker interaction of stock and oil prices. As a result, the biggest declines in percentage risk contributions were recorded for the oil position (-1.7%) and the US equity bucket (-1.5%). Non-US equities, in contrast, saw their share of overall portfolio risk increase, due to a stronger co-movement of local share prices and foreign-exchange rates against the US dollar. Sovereign and high-quality corporate bonds also added to total volatility, as their prices increased alongside stock markets in the past week.

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