###POV. EVIDENCE OF...........>

GLOBAL MARKET/OPINION: ###POV. EVIDENCE OF RISK-PARITY FUND SELLING

- As bonds and equities sink together there is chatter that risk-parity (RP)

funds sit behind the move. Such funds allocate risk to at least 3 asset classes:

bonds, equities and inflation and target a certain underlying volatility of the

NPV for clients. Thus, when markets become more volatile, RP funds may need to

decrease leverage. Also, when equities and bond prices move in the same

direction (rather than opposing) this increases the underlying volatility of the

NPV - hence they deleverage more and deleverage everywhere. 

- These funds concentrate most of their assets in liquid futures but for

inflation risk, this is not easy and so when risk-parity funds are deleveraging,

the tell-tales can usually be seen in the fairly illiquid ILB markets, mostly

via a decline in breakevens. 

- Globally, breakevens are on their way up and hitting recent highs, not

falling. This suggests that RP funds are probably only selling assets lightly,

not extensively. Besides, a few weeks of changing correlations are not usually

sufficient to materially impact their correlation tables.