Citi Wealth Insights

Several factors appear to be stoking inflation fears. Within fixed income, Citi analysts favor selective segments which could help to achieve returns with reduced risk.

With real rates in negative territory, Citi’s Global Investment Committee is underweight global fixed income. US variable rate loans and Asian Emerging Market debt are preferred.

With large-scale production and additional vaccines likely, an end to the global pandemic is expected to begin by mid-year 2021, bringing a potential sharp broadening out of the world economic recovery in the second half of 2021. Citi’s Global Investment Committee thus increased its Overweight in Equities, and increased its Underweight in Bonds. Gold and Real Estate Investment Trusts (REITs) remain Overweight while Cash remains Underweight.

A sustained period of structurally low interest rates is likely to keep the demand for yield elevated. Citi analysts see selective opportunities in Emerging Market debt and US high yield bonds, which could continue to be supported by a recovery from the COVID-19 shock.

The global economy is likely to recover more quickly and robustly from the COVID-19 recession than after a more typical large downturn. The mispricing of equities caused by COVID-19 could be reversed.

With real rates in negative territory, Citi’s Global Investment Committee is underweight global fixed income, preferring US and European high yield bonds and emerging markets credit.