MAC Monitor — October 25, 2021

Multi-Asset Class Risk Monitor Highlights | Week Ended October 22, 2021

  • Rising consumer prices boost bond yields—and share prices continue to climb
  • Sterling rate markets consider BoE move before year-end a certainty
  • Portfolio risk falls, as stocks and bonds resume their counter-movement

Rising consumer prices boost bond yields—and share prices continue to climb

US Treasury yields rose to their highest levels in more than five months in the week ending October 22, 2021, once again boosted by equivalent gains in inflation expectations. Since the last Federal Reserve meeting on September 21-22, the 10-year benchmark yield has climbed 34 basis points, while the equivalent breakeven rate has increased by 0.35% to 2.64%. The latest move followed announcements from large consumer-goods producers, including Nestlé, Procter & Gamble, and Unilever, that they would pass on recent increases in their input costs to end customers. Equity investors, in contrast, interpreted this as good news for companies’ bottom lines, propelling the STOXX® USA 900 to another record high on Thursday.

Please refer to Figure 4 of the current Multi-Asset Class Risk Monitor (dated October 22, 2021) for further details.

Sterling rate markets consider BoE move before year-end a certainty

Short-dated Gilt yields surged 12 basis points in the week ending October 22, 2021, as traders deemed a 0.15% Bank of England rate hike to 0.25% before the end of the year a near-certainty. Overnight index swap curves painted a similar picture, with the 1-month and 2-month forward rates closing at 0.20% and 0.31%, respectively—up from less than 0.10% at the last Monetary Policy Committee meeting on September 23. The moves were spurred by comments from both BoE Governor Andrew Bailey and newly appointed Chief Economist Huw Pill that rate setters would likely discuss an interest-rate move at the upcoming MPC meeting on November 4. The pound sterling, meanwhile, remained stable against the dollar, but was up 0.4% against both the euro and Japanese yen.

Please refer to Figures 3 & 6 of the current Multi-Asset Class Risk Monitor (dated October 22, 2021) for further details.

Portfolio risk falls, as stocks and bonds resume their counter-movement

Predicted short-term risk in Qontigo’s global multi-asset class model portfolio fell 0.4% to 8.1% as of Friday, October 22, 2021, as stock and bond prices once more moved in opposite directions. Non-USD nominal and inflation-linked government bonds were among the biggest beneficiaries, due to a complete decoupling of interest-rate and FX returns. US investment-grade corporate bonds, meanwhile, experienced the biggest individual decline in percentage risk contribution, from 2.3% to 0.6%, thanks to the ongoing inverse interaction between sovereign yields and credit spreads. The latter also meant that holding high-yield securities even slightly reduced overall portfolio volatility.

Please refer to Figures 7-10 of the current Multi-Asset Class Risk Monitor (dated October 22, 2021) for further details.