Riskwatch for July 24, 2017
RiskWatch provides recent data on volatility and correlation, the two components of risk, for U.S. and global equity and fixed-income markets. The equity data are derived from Axioma's medium-term fundamental risk model. The first set of tables is designed to capture U.S. market sectors plus countries and currencies with the highest and lowest levels of volatility and how that component of risk has changed since the end of the prior quarter. The highest and lowest correlated countries within developed and emerging markets are also highlighted. Another table illustrates how currency volatility has been a major driver of risk in multicountry benchmarks as well as a cause for concern in individual countries. The fixed-income data, detailed in the multiasset-class section, consist of U.S. and eurozone government yields, investment-grade and subinvestment-grade spreads as well as correlations among those asset classes and selected currencies. Data are as of June 30, 2017. Change compares to the previous quarter.
U.S. market volatility*
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*US4 risk model forecast
Index volatility
Predicted volatility by currency*
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Predicted volatility by country*
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Emerging markets**
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Country-country correlations**
Developed markets
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Emerging markets
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Volatility surprise
While more than half of global industries saw their risk fall over the last three months, a few -- spanning different parts of the economy -- bucked the trend and experienced a fairly substantial increase in their volatility from the end of last quarter.
Multiasset-class data
Risk
| Level | Change | Standard deviation | Change | |
|---|---|---|---|---|
| U.S. 10-year T-note (yield) | 2.33% | -9.6 bps | 61.34% | -0.05% |
| U.S. inv.-grade (spread) | 61 bps | -0.57 bps | 30.77% | -0.02% |
| U.S. high yield (spread) | 287 bps | -7.86 bps | 67.24% | -0.21% |
| European gov't 10-year (yield) | 0.51% | 17.27 bps | 55.15% | 0.00% |
| European inv.-grade (spread) | 62 bps | -11.25 bps | 38.07% | 0.01% |
| European high yield (spread) | 227 bps | -27.67 bps | 85.80% | -0.07% |
| Euro** | 1.14 | 6.64% | 7.12% | -1.35% |
| British pound** | 1.30 | 3.88% | 9.66% | -1.52% |
| Japanese yen** | 112.36 | 0.83% | 9.59% | -1.48% |
Asset-class correlations
| U.S. 10-year T-note | U.S. investment grade | U.S. high yield | Euro gov't 10-year | Euro investment grade | Euro high yield | Russell 1000 | Russell 2000 | FTSE | Euro | Pound | Yen | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| U.S. 10-year T-note (yield) | 1.00 | -0.09 | -0.53 | 0.66 | -0.18 | -0.09 | 0.22 | 0.31 | 0.09 | -0.26 | -0.10 | -0.48 |
| U.S. inv.-grade (spread) | -0.09 | 1.00 | 0.48 | -0.07 | 0.20 | 0.18 | -0.13 | -0.10 | -0.14 | -0.03 | 0.05 | 0.08 |
| U.S. high yield (spread) | -0.53 | 0.48 | 1.00 | -0.37 | 0.12 | 0.22 | -0.37 | -0.33 | -0.42 | 0.08 | 0.09 | 0.32 |
| European gov't 10-year (yield) | 0.66 | -0.07 | -0.37 | 1.00 | -0.30 | -0.18 | 0.07 | 0.13 | 0.04 | -0.07 | 0.00 | -0.43 |
| European inv.-grade (spread) | -0.18 | 0.20 | 0.12 | -0.30 | 1.00 | 0.49 | -0.02 | -0.04 | -0.09 | -0.15 | -0.06 | 0.14 |
| European high yield (spread) | -0.09 | 0.18 | 0.22 | -0.18 | 0.49 | 1.00 | -0.02 | 0.02 | -0.18 | -0.14 | -0.13 | 0.15 |
| Euro** | -0.26 | -0.03 | 0.08 | -0.07 | -0.15 | -0.14 | -0.07 | -0.13 | 0.25 | 1.00 | 0.56 | 0.59 |
| British pound** | -0.10 | 0.05 | 0.09 | 0.00 | -0.06 | -0.13 | 0.02 | 0.02 | 0.24 | 0.56 | 1.00 | 0.29 |
| Japanese yen** | -0.48 | 0.08 | 0.32 | -0.43 | 0.14 | 0.15 | -0.17 | -0.22 | -0.02 | 0.59 | 0.29 | 1.00 |
U.S. and euro spread curves are now defined as the spread over the swap curve (previously spread over the government curve). Emerging markets sections include only countries in the FTSE Emerging Markets index.
*Numeraire: U.S. dollar.
**In excess of the global market.
Source: Axioma
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