MAC Monitor — November 3, 2020

Multi-Asset Class Risk Monitor Highlights | Week Ended October 30, 2020

Bund yields drop as lockdowns expand; Euro dips as interest-rate differential widens; Portfolio risk surges on higher equity volatility

Bund yields drop as lockdowns expand

Yields on German government bonds plunged to their lowest levels since March in the week ending October 30, 2020, as stock markets posted their biggest weekly losses in more than seven months. The EURO STOXX 50® blue-chip benchmark for the Eurozone declined 7.5%, as more major European economies joined the growing list of countries implementing nationwide lockdown measures. US Treasury rates, in contrast, ended the week slightly higher, lifted by a sharp rebound in economic growth in the third quarter of 2020, along with lower-than-expected jobless claims reported for the previous week. Expectations of continued fiscal support—promised by both presidential candidates—provided additional buoyancy.

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Please refer to Figures 4 of the current Multi-Asset Class Risk Monitor (dated October 30, 2020) for further details.

Euro dips as interest-rate differential widens

The euro depreciated 1.6% against the US dollar in the week ending October 30, 2020, as the interest-rate differential between 10-year US Treasuries and same-maturity German Bunds expanded to over 150 basis points—its widest since March 18. Losses were even more pronounced for the Norwegian krone, which dropped over 3% against the greenback, after the price of Brent crude oil recorded its steepest weekly plunge in more than six months. The Japanese yen was the only major currency to see its value increase, which is usually a sign of waning risk appetites. As a consequence, short-horizon risk for JPY/USD decreased slightly to 7.0%, while predicted volatility for EUR/USD ended the week marginally higher at 6.8%.

Please refer to Figure 6 of the current Multi-Asset Class Risk Monitor (dated October 30, 2020) for further details.

Portfolio risk surges on higher equity volatility

Short-term risk in Qontigo’s global multi-asset class model portfolio surged 2.8% to 10.7% as of Friday, October 30, 2020, as share-price volatility soared by almost four percentage points and the co-movement with currency exchange rates intensified. Non-US developed equities, therefore, recorded the biggest increase in their percentage risk contribution from 19.5% to 23.4%, as most currencies devalued against the US dollar alongside falling share prices. Oil also saw its share of overall portfolio volatility rise significantly from 3.2% to 5.5%, after its price dropped dramatically amid concerns of dwindling demand due to tighter COVID restrictions in most European countries.

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Please refer to Figures 7-10 of the current Multi-Asset Class Risk Monitor (dated October 30, 2020) for further details.