RiskWatch for Q3 2022

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 Qontigo'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 use the Axioma WW4 (worldwide) model: predicted volatility by currency, predicted volatility by country and country-country correlations. Data are as of Sept. 30, 2022. Change compares with the previous quarter.

High reported inflation, accompanied by central bank tightening in the third quarter, drove rates substantially higher, continuing a two-year uptrend. By the end of the quarter, 10-year government bond yields in the U.K. and U.S. had risen to levels not seen in 10 years. Additional political turmoil in the U.K., along with even higher inflation than in the U.S. and grave concerns about the impact of the war in Ukraine meant that U.K. rates almost doubled in the quarter. In addition, 10-year gilt yields surpassed U.S. Treasury yields for the first time since 2014.