Risk Aversion Index
Risk Aversion Index: A New “Lower Risk” Signal
Our Risk Aversion Index fell enough last month to generate a new “Lower Risk” signal. This is certainly not a “no brainer” risk-on signal. We recommend higher quality spread products within fixed income.
Risk Aversion Index—New “Lower Risk” Signal
We expect the search for yield to continue in the near term and favor Higher Quality credits within fixed income.
Risk Aversion Index—Ticked Up But Stayed On “Lower Risk” Signal
The real test for risky assets lies immediately ahead with central bank meetings, the Brexit vote, and the Spanish election later in the month. We continue to favor Higher Quality credits within fixed income.
Risk Aversion Index—Ticked Lower But Stayed On “Higher Risk” Signal
We believe a short term rally is more likely and recommend a neutral stance towards credits at this point.
Risk Aversion Index Fell Sharply, Generated A New “Lower Risk” Signal
Favor credits within fixed income in the near term but beware of volatility ahead
RAI Ticked Up And Stayed On “Higher Risk” Signal
We recommend staying cautious and exercising patience in the near term.
Risk Aversion Index—Fell Sharply But Stayed On “Higher Risk” Signal
We are leaning towards a more favorable outcome for risky assets but staying alert.
Risk Aversion Index—Stays On “Higher Risk” Signal
The market is at a critical juncture with oil-related assets very oversold while equities are holding near all-time highs.
Risk Aversion Index Stays On “Lower Risk” Signal
Continued strength in equities offsets the weakness in credits and commodities to arrive at an essentially flat reading.
Risk Aversion Index Ticked Up - Still On “Higher Risk” Signal
There have been several cases in the last couple years where credit and/or currency risk-off events never affected equities. We will soon find out if this is just another one of those. Caution is recommended.
Risk Aversion Index - New Higher Risk Signal
Surprising strength in the Yen, a drop in commodities, and slightly wider credit spreads pushed up the index. An increase in risk aversion becomes more likely at the current extremely low level. Caution is warranted.
RAI Lower - Stays on "Lower Risk" Signal
Risk assets continued to perform well in March, and our monthly Risk Aversion Index (RAI) fell to near record low levels. We continue to favor high quality credits within fixed income.
RAI Falls Sharply—New “Lower Risk” Signal
This closed out the one month old “Higher Risk” signal. We continue to favor high quality credits within fixed income.
Risk Aversion Index Turns Higher, New “Higher Risk” Signal
We are turning defensive within fixed income and recommend moving up the quality scale.
Risk Aversion Index Edges Lower, Stays On Its “Lower Risk” Signal
We are in the seasonally favorable part of the year and we continue favoring high-grade credits within fixed income.
Risk Aversion Index Falls Further, Stays On Its “Lower Risk” Signal
We seem to be in a “Goldilocks” period, where economic numbers are not bad enough to re-ignite recession fears but are just weak enough to push the taper farther off.
RAI Falls, But Stays On “Higher Risk” Signal—Remain Cautious
The RAI fell in August and stayed on a “High Risk” signal. We remain cautious and recommend higher quality within fixed income.
RAI Fell, But Stayed On “Higher Risk” Signal—Remain Cautious
The RAI fell in July and stayed on a “High Risk” signal. We remain cautious and recommend higher quality within fixed income.
New “Higher Risk” Signal — But We Remain Cautiously Optimistic
We’re downplaying the new signal’s significance and remain cautiously optimistic towards risky assets near term. Our biggest concern is that a rise is extremely likely going forward.
The State Of Interest Rates
We think interest rates will stay low for an extended period of time, so the key question is, when will rates start rising?
New Higher Risk Signal Generated But Optimistically Cautious
This new “Higher Risk” signal closed out the previous “Lower Risk” signal generated last December, and this measure is telling us it’s time to play a little defense.
Interest Rate Expectations
In the near term, U.S. interest rates are expected to be range-bound, and we remain neutral on the U.S. yield curve. Bond Market Risk Aversion Index fell again in January, and remains on a “lower risk” signal.
New “Lower Risk” Signal Generated
Bond Market Risk Aversion Index fell in December, resulting in a new “lower risk” signal that closed out the “higher risk” signal which occurred back in May. We are now cautiously optimistic.
Risk Aversion Edged Up - Stay Defensive And Be Patient
The Risk Aversion Index edged up during November. It is still on a “higher risk” signal. We will stay defensive and be patient. Higher quality assets within the fixed income space are favored.
Risk Aversion Fell Sharply, But Caution Still Warranted
The Risk Aversion Index fell sharply during October. Despite the sharp drop in the index, it has not fallen enough to generate a new “lower risk” signal. Our take on the current reading is “wait and see” with a bias towards lower risk.
Risk Contagion Underway, But There Is A Silver Lining
A Risk Contagion is now underway, and we continue to stay defensive and favor higher quality assets within the fixed income space. A silver lining: When the Risk Aversion Index moves above 1, odds start to favor a decrease in risk aversion going forward. The bulk of the move is probably done.
It Is All About Confidence
As we expected, the U.S. downgrade was digested by the market fairly quickly and attention turned to the economy. This is a bear market in confidence, more than anything else.
It’s The Economy, Stupid
U.S. likely averted worst-case scenario of default, but credit rating downgrade is still likely. Main impact of downgrade is not the increase in interest rates itself, but rather the liquidity risk in all markets that involve treasury securities as collateral.
Risk Aversion Index Says “Wait And See”
The Monthly Risk Aversion Index edged down slightly in June, pausing for a clearer direction. The biggest contributors of risk are commodities and credit spreads.
Now Entering Increasing Risk Aversion Environment
Risk Aversion Index accelerated in May, making it prudent to favor defensive assets near term. Expect small and gradual increase in long term interest rates.
The Bond Bubble Is Beginning To Deflate… Is This Cheap Money Era Ending?
An orderly decline of the dollar is not necessarily a big concern. On the other hand, a sudden collapse of the dollar, in conjunction with spiking U.S. interest rates, would be a terrible thing. So far this has not been the case.
Monthly Risk Aversion Index (RAI)
This month’s “Inside The Bond Market” presents our new “Risk Aversion Index,” which was developed by Chun Wang to respond to those factors that the bond market is truly worrying about. The Index examines ten factors on a monthly basis to help best position a bond portfolio.