Risk appetite picks up in December
“Risk-on” sentiment in December was stronger than previous months.
- Equity markets rallied, and international stocks outperformed.
- The U.S. dollar depreciated against most other international currencies
- Bonds that are more sensitive to risk sentiment gained..
- Treasury yields lagged the sell-off in European sovereign bonds.
- Oil prices, which behave just like a risk asset, gained.
This 10-year illustration captures the cyclicality of investors' appetite for risk.
Eruption and subsequent clearing of concerns over EU sovereign debt crisis, U.S. debt ceiling, and fear of China hard landing drive major risk sell-off and rally.
March '16–Jan '18
Risk assets rally amid improving commodity prices, perceived stability in China’s macro data, and expectations for gradualist Fed policy.
Source: Putnam. Data as of December 31, 2019. To create the Global Risk Appetite Index, we weigh the monthly excess returns of 30 different asset classes over 3-month T-bills relative to the trailing 2-year volatility of each asset class. The higher the excess return and the lower the volatility, the greater the risk appetite; conversely, the lower the excess return and the higher the volatility, the stronger the risk aversion.