MAC Monitor — September 8, 2022

Multi-Asset Class Risk Monitor Highlights | Week Ended September 2, 2022

  • Gilt yields soar but recession fears remain
  • Rising ECB rate expectations support euro amid looming energy and inflation crisis
  • Portfolio risk rises as stocks and bonds tumble together

Gilt yields soar but recession fears remain

Short-dated UK sovereign yields soared another 25 basis points in the week ending September 2, 2022, amid growing anticipation that the Bank of England (BoE) could raise rates to their highest levels since the onset of the global financial crisis. The move takes the total increase at the 2-year point since the start of August to 1.25 percentage points. Short-term interest-rate derivatives now imply that the BoE base rate will reach 4.50% for the first time since October 2008 next summer. Yield increases where even higher at longer maturities, with 20-year point climbing almost 40 basis points last week. Yet, the highest point of the Gilt curve still remained a full percentage point below the anticipated base rate peak, reflecting the ongoing growth concerns for the UK economy.

Please refer to Figure 3 of the current Multi-Asset Class Risk Monitor (dated September 2, 2022) for further details.

Rising ECB rate expectations support euro amid looming energy and inflation crisis

The euro held firm against a strengthening US dollar in the week ending September 2, 2022, as traders started betting that the European Central Bank could raise its policy rates by 0.75% at its upcoming meeting on September 8. The speculation was fueled by the latest flash estimate from Eurostat that consumer prices in the Eurozone had risen by 9.1% in the 12 months to August—the steepest increase since the formation of the single-currency area. With the energy crisis in Europe deepening as Gazprom announced the indefinite closure of the Nord Stream 1 pipeline, economists now predict that headline inflation could hit double digits in coming months and remain at elevated for even longer than previously anticipated.

Please refer to Figure 6 of the current Multi-Asset Class Risk Monitor (dated September 2, 2022) for further details.

Portfolio risk rises as stocks and bonds tumble together

Predicted short-term risk in Qontigo’s global multi-asset class model portfolio soared another 1.7 percentage points to 14.4% as of Friday, September 2, 2022, as stock and bond markets booked a third consecutive week of simultaneous losses. That said, it was the oil holding which experienced the biggest increase in its percentage risk contribution from -0.5% to 2%, as crude prices plummeted alongside share prices amid growing economic growth concerns, especially in Europe. Global index-linked bonds also saw their share of overall portfolio volatility climb by 1.2% to 5.7%, as long-term inflation expectations eased further, despite a renewed surges in current consumer prices.

Please refer to Figures 7-10 of the current Multi-Asset Class Risk Monitor (dated September 2, 2022) for further details.