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BofAML GFSI™ X-Asset Risk Landscape
GFSI makes new YTD lows as BoE & NFP boost risk assets
The GFSI declined to a new YTD low of 0.18 as of 5-Aug, a level not seen since Nov-15.
With the BoE surprising to the upside in terms of cutting rates, re-starting QE and
guiding towards more accommodative policy down the line, as well as better than
expected US non-farm payrolls, risk assets globally got a boost.

• Credit experienced the biggest decline in stress across assets: Chart 3
shows that credit (followed by equities) experienced the biggest weekly stress
decline. Indeed, Chart 5 and Chart 6 show that sovereign risk as measured by IG
& sub-IG foreign sovereign bond spreads experienced the most significant
weekly declines in stress versus their history in the GFSI.

• Europe continues to be most stressed region: Chart 4 shows that Europe is
the most stressed region in the GFSI, despite the stress declines last week. US-
related stresses which were already relatively lower vs the other regions, were
more resilient. Indeed the only significant move higher in regional stress was in
USD Libor-OIS spreads (Chart 5), which our Rates strategists view as driven by
the anticipation of US money market mutual fund reform in October.

Chart 1: Latest* stress across GFSI sub-components
[Chart 1 Y-axis: GFSI Stress -2.0 to 4.0]
[Annotations: Red shaded area highlights components in Bearish. Green shaded area highlights components in Bullish territory. Legend: Risk, Skew, Flow]
[X-axis labels include: Basis Swap USDJPY, Basis Swap EURUSD, Govt-OIS EUR, Bond Basis EUR, CDS Index Skew USD, Euro member Bond..., USDJPY Imp Vol, Libor-OIS USD, Comdty Imp Vol Crude, ESTX50 Skew, SP500 Skew, Nikkei Skew, USDJPY Skew, GBPUSD Imp Vol, Govt-OIS USD, EURJPY Skew, Libor-OIS GBP, Volume Flow, HY Bond Flow, CDS Index Skew EUR, Bond Basis USD, IG Foreign Sovrn Bond..., AUDJPY Skew, Equity Fund Flow EM, Nikkei Imp Vol, HY Corp CDS USD, Libor-OIS EUR, ESTX50 Imp Vol, Sub IG Foreign Sovrn..., HSI Imp Vol, Libor-OIS JPY, IG Corp CDS USD, HY Corp CDS EUR, Comdty Imp Vol Gold, IG Corp CDS EUR, FTSE Imp Vol, Money Mkt Flow, Comdty Imp Vol Copper, 3Y/5Y Credit Curve EUR, SP500 Imp Vol, Int Rate Imp Vol USD, EURUSD Imp Vol, Int Rate Imp Vol EUR]
Source: BofA Merrill Lynch Global Research. *Latest as of 05-Aug-16

Chart 2: Change** in stress across GFSI sub-components. The biggest moves were declines in stress; led by credit. Notably stress in GBP vol declined post BoE
[Chart 2 Y-axis: Change in GFSI Stress -1.0 to 0.6]
[X-axis labels similar to above, showing change values]
Source: BofA Merrill Lynch Global Research. **Latest as of 05-Aug-16. Change vs 1 week prior (29-Jul-16).

2 Global Equity Volatility Insights | 09 August 2016
Bank of America Merrill Lynch
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