by Qontigo
- Treasury yields drop as Fed approaches pivot
- BoE leaves door open for further hikes, supporting the pound
- Portfolio risk holds steady amid overall stock-market recovery
Treasury yields drop as Fed approaches pivot
Yields on short and medium-term US government bonds continued their descent in the week ending March 24, 2023, as the Federal Reserve seemingly signaled that it was approaching the end of its rate-hiking cycle. On Wednesday, the central bank raised its policy target by 25 basis points to 4.75-5.00% in line with expectations, but market participants spotted the notable absence of references to the anticipation of “ongoing increases in the target range”, which had been an integral part of every FOMC statement over the previous 12 months. Rate decreases where most pronounced at the 3-year point of the US Treasury curve, which plummeted 15 basis points, while the 10-year bellwether lost 0.04% to 3.38%—its lowest level in over three months.
Please refer to Figure 3 of the current Multi-Asset Class Risk Monitor (dated March 24, 2023) for further details.
BoE leaves door open for further hikes, supporting the pound
The pound sterling climbed to a 7-week high in the week ending March 24, 2023, as the Bank of England left the door open for further rate hikes, citing “persistent inflationary pressures.” The Monetary Policy Council raised its base rate by 25 basis points to 4.25% on Thursday, following an unexpected uptick in headline inflation to 10.4% for the 12 months ending in February. The number released on Wednesday exceeded both the previous month’s price growth of 10.1% and the consensus prediction of 9.9%. Short-term interest-rate futures now predict one more rate hike to 4.5% by June, with a year-end base-rate projection of 4.25%. The latter is higher than the anticipated December average for the effective US federal funds rate, which currently stands at 4%, thus lending support to the pound against its American rival.
Please refer to Figure 6 of the current Multi-Asset Class Risk Monitor (dated March 24, 2023) for further details.
Portfolio risk holds steady amid overall stock-market recovery
The predicted short-term risk of Qontigo’s global multi-asset class model portfolio steadied at 7.8% as of Friday, March 24, 2023, as broad-market equity benchmarks ended the week in the black despite ongoing losses in their financial sub-components. US stocks recorded the biggest compression in their percentage risk contribution from 55.8% to 43.1%. But non-US developed shares saw their share of overall portfolio risk expand by 3.8% to 21%, as their local gains were amplified by their respective currencies appreciating against the USD. Greater exchange-rate fluctuations also made non-USD bonds appear more risky in spite of lower interest-rate volatility and stabilizing credit spreads.
Please refer to Figures 7-10 of the current Multi-Asset Class Risk Monitor (dated March 24, 2023) for further details.
