April 15, 2019 01:00 AM
Riskwatch for Q1 2019
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 models. One 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 can be a major driver of risk in multicountry benchmarks and can often change substantially from one quarter to the next. 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. Note that the following charts are now using Axioma's WW4 (worldwide) model: predicted volatility by currency, predicted volatility by country and country-country correlations. Data are as of March 29, 2019. Change compares to the previous quarter.
U.S. market volatility*
Predicted volatility by currency**
Predicted volatility by country***
Brexit's diminishing effects on risk
Despite the uncertainty surrounding Brexit, U.K. equities have experienced a decline in volatility since the June 2016 vote, in line with what has occurred in other markets around the world. At the same time, the volatility of the pound vs. the dollar has been on a more steady downward trend. That may say more about the increased volatility of the dollar, given the potential of trade wars and uncertainty about the Federal Reserve's direction, than it does about the pound and a post-Brexit future.
|U.S. T-Note 10-year (yield)||2.41%||-27.8 bps||0.53%||0.00%|
|U.S. inv.-grade (spread)||56 bps||-18.3 bps||0.21%||-0.01%|
|U.S. high-yield (spread)||358 bps||-67.03 bps||0.78%||0.06%|
|European gov't 10-year (yield)||-0.06%||-33.2 bps||0.44%||0.00%|
|European inv.-grade (spread)||69 bps||-4.28 bps||0.23%||0.00%|
|European high-yield (spread)||245 bps||-62.1 bps||0.75%||0.02%|
|Russell 1000||Russell 2000||FTSE||Euro||Pound||Yen|
|U.S. T-Note 10-year (yield)||1.00||-0.45||-0.61||0.71||-0.37||-0.39||0.38||0.39||0.40||0.07||0.07||-0.46|
|U.S. inv.-grade (spread)||-0.45||1.00||0.47||-0.22||0.07||0.22||-0.19||-0.16||-0.21||-0.07||-0.02||0.21|
|U.S. high-yield (spread)||-0.61||0.47||1.00||-0.45||0.22||0.45||-0.48||-0.44||-0.62||-0.22||-0.18||0.35|
|European gov't 10-year (yield)||0.71||-0.22||-0.45||1.00||-0.49||-0.47||0.19||0.20||0.29||0.33||0.31||-0.39|
|European inv.-grade (spread)||-0.37||0.07||0.22||-0.49||1.00||0.64||-0.12||-0.13||-0.18||-0.20||-0.22||0.25|
|European high-yield (spread)||-0.39||0.22||0.45||-0.47||0.64||1.00||-0.24||-0.19||-0.35||-0.23||-0.19||0.30|
U.S. and euro spread curves are defined as the spread over the swap curve. Emerging markets sections include only countries in the FTSE Emerging Markets index.
*US4 medium-horizon fundamental forecast.
**Numeraire: U.S. dollar.
***In excess of the global market.