MAC Monitor — November 24, 2020

Multi-Asset Class Risk Monitor Highlights | Week Ended November 20, 2020

Sovereign yields fall, as investors confront downside risks; Pound rises alongside UK share prices; Portfolio risk dips on lower equity risk

Sovereign yields fall, as investors confront downside risks

Government-bond yields surrendered most of their previous gains in the week ending November 20, 2020, as investors once more reacted to the downside risks posed by both resurging COVID infections and the reintroduction of lockdown measures in a growing number of regions. A renewed rise in unemployment claims and weaker-than-expected growth in consumer spending added further downward pressure on the 10-year US Treasury rate, which declined by 7 basis points. More good news on the vaccine front did little to the stem the flight-to-safety flows, which were further fueled by Treasury Secretary Steven Mnuchin’s announcement that his department would not extend the emergency lending facilities set up by the Federal Reserve Bank at the onset of the coronavirus outbreak.

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Please refer to Figures 4 of the current Multi-Asset Class Risk Monitor (dated November 20, 2020) for further details.

Pound rises alongside UK share prices

The pound recorded its third consecutive weekly gain against the US dollar in the week ending November 20, 2020, as its American rival was hampered by the conflict between the Treasury Department and the Federal Reserve. UK share prices also eked out a small profit for the week, continuing the recent co-movement of stock market and currency, which we have observed over the past nine weeks. Predicted short-term volatility for GBP/USD, meanwhile, fell to 9.8%—its lowest level since mid-March. The strengthening of the pound appeared to be part of a wider dollar depreciation, which benefitted all G10 currencies. The Norwegian krone was the biggest winner, with a gain of 1.8% driven by a continued rise in oil prices.

Please refer to Figure 6 of the current Multi-Asset Class Risk Monitor (dated November 20, 2020) for further details.

Portfolio risk dips on lower equity risk

Short-term risk in Qontigo’s global multi-asset class model portfolio fell 1.4 percentage points to 13.7% as of Friday, November 20, 2020, primarily driven by a 2% drop in stock-market volatility. About 85% of the risk reduction was, therefore, recorded in the three equity categories, followed by oil, which accounted for another 8%. The latter saw its correlation with share prices decrease, as its price continued to rise on hopes that the recent vaccine breakthroughs would lead to a swifter economic recovery, while global equity benchmarks were more or less unchanged amid the ongoing sector rotation. US Treasuries, meanwhile, neither added to nor subtracted from overall portfolio risk, as their prices remained uncoupled from both stock markets and FX rates.

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Please refer to Figures 7-10 of the current Multi-Asset Class Risk Monitor (dated November 20, 2020) for further details.