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MAC Monitor — May 16, 2022

Multi-Asset Class Risk Monitor | Week Ended May 13, 2022

  • Abating US inflation pushes yields lower
  • Credit spreads soar as US stock market extends its losing streak
  • Surging equity volatility boosts portfolio risk

Abating US inflation pushes yields lower

Sovereign yields tumbled around the globe and across all maturities in the week ending May 13, 2022, as US inflation abated for the first time in eight months. American headline consumer prices grew 8.3% in the 12 months ending in April, down from 8.5% in the previous month, though still beating the consensus forecast of 8.1%. The slowdown in price growth is expected to slightly reduce the pressure on the world’s major central banks, with short-term interest-rate futures maturing in July 2023 now pricing in one 0.25% rate hike less from both the Federal Reserve and the Bank of England and 50 basis points less from the European Central Bank. That said, seasonally adjusted month-on-month inflation still came in at 0.3%, which is almost twice the average rate of 0.17% that would be consistent with an annual inflation of 2%.

Please refer to Figures 3 & 4 of the current Multi-Asset Class Risk Monitor (dated May 13, 2022) for further details.

Credit spreads soar as US stock market extends its losing streak

Credit-risk premia on high yield debt soared to their highest levels since mid-March in the week ending May 13, 2022, as the STOXX® USA 900 recorded its sixth consecutive weekly loss. This constitutes the longest weekly losing streak for the US stock market since the onset of the global financial crisis in 2008, taking the total drawdown since the beginning of April to over 11% (-17% year-to-date). With sovereign yields also rising, this meant that corporate bonds underperformed government debt over the same period. According to data from ICE BofA fixed income indices, USD investment grade and high yield corporate bonds have lost 5.9% and 5.7%, respectively, so far this quarter, compared with a return of -3.7% for US Treasuries.

Please refer to Figure 5 of the current Multi-Asset Class Risk Monitor (dated May 13, 2022) for further details.

Surging equity volatility boosts portfolio risk

Predicted short-term risk in Qontigo’s global multi-asset class model portfolio soared 2.6 percentage points to 14.5% as of Friday, May 13, 2022, driven primarily by a 5% jump in standalone equity volatility. Most of the increase was recorded in the US equity category, which saw its share of overall risk rise by 4.8 points to 55.1%. Government and high quality corporate bonds, on the other hand, benefitted from the sharp drop in sovereign yields, while the percentage risk contribution of high yield securities remained almost unchanged, as the risk-reducing effect of lower interest rates was offset by the surge in credit spreads.

Please refer to Figures 7-10 of the current Multi-Asset Class Risk Monitor (dated May 13, 2022) for further details.