Treasuries and risk assets rally
The year started with rising expectations for the Federal Reserve to cut interest rates. This caused Treasuries to rally back to early December levels. Hopes of a soft landing increased at the same time, partly on Fed cut expectations and partly on optimism about global growth. An interest-rate-driven rally in risk assets resumed.
This 10-year illustration captures the cyclicality of investors' appetite for risk.
March '16–Jan '18
Risk assets rally amid improving commodity prices, perceived stability in China's macro data, and expectations for gradualist Fed policy.
March '20–Dec '21
Easy monetary policies and reopenings supported risk assets.
Central bank tightening expectations along with the Russia-Ukraine crisis raise market volatility.
Source: Putnam. Data as of January 31, 2023. To create the Global Risk Appetite Index, we weigh the monthly relative 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 relative return and the lower the volatility, the greater the risk appetite; conversely, the lower the relative return and the higher the volatility, the stronger the risk aversion.
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