Risk Aversion Index

The impact of Omicron is already fading and the global-tightening cycle is far more important going forward. Elevated valuations amid a broadening global-tightening cycle is our key concern.

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With the market getting less sensitive to each iteration of new variant, we believe the impact of Omicron is unlikely to be as significant as the global-tightening cycle.

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With seasonality once again turning positive and inflation breakeven rates bumping above the recent range, we continue to favor the reflation trade.

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Elevated valuations and a global tightening cycle are usually not a favorable context for risky assets. Within fixed income, we remain positive toward TIPS and cautious on credit.

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The reflation trade stayed in a holding pattern with breakeven rates remaining range bound. Within fixed income, we are favorable toward TIPS and cautious on credit.

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Our Risk Aversion Index moved higher and generated a new “Higher Risk” signal. Within fixed income, we are favorable toward TIPS and cautious on credit.

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With the looming Fed taper and valuations stretched on almost all risky assets, volatility is likely to increase in the near term. Among fixed income, we are favorable toward TIPS and cautious on credit.

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The talk of taper has started to resurface. In this context, higher inflation might become a negative for credit. For now, we remain favorable toward TIPS but turn cautious toward credit.

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The reflation trade continued with higher breakeven rates and lower real yields, a favorable make-up for risky assets.

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The reflation theme continues to be supported by the powerful policy mix and a successful vaccine rollout. Within fixed income, we are favorable toward TIPS and short-term high-yield credit.

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While mechanical signals generated from extremely low RAI levels can be noisy, extended valuations on most assets suggest we err on the side of caution.

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We remain favorable toward credit including investment grade and high yield corporates.

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We remain favorable toward credit and recommend both investment grade and high yield corporates.

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With election risk largely in the rear-view mirror, volatility has come down across most asset classes, contributing to the drop in the RAI.

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We are cautious near term and recommend playing defense through duration reduction within corporate credit (including both investment grade and high yield).

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Treasuries’ ability to provide downside protection has weakened; a better way to play defense is probably through duration reduction within corporate credit (including both investment grade and high yield).

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The breakeven rates capture the spirit of the overall risk rally and continue to provide support. The change in the Fed’s policy goals means it will remain accommodative for even longer.

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With “reopening” taking a pause, we expect global policies to remain accommodative even longer. Among fixed income, we like corporate credit, which includes both investment grade and high yield bonds.

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While the market seems to have priced in a quick recovery, recent economic data has materially exceeded market expectations and provided support to the rally. Within fixed income, we maintain a favorable view toward investment-grade corporate bonds and we still recommend staying within range of the Fed’s fire power.

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Our Risk Aversion Index fell sharply in May and generated a new “Lower Risk” signal. Within fixed income, we are turning more constructive on credit, overall, and maintain our favorable view toward investment-grade corporate bonds.

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