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Citi Wealth Insights

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Positioning for Recovery and Rising Rates

With help from Friday’s “mere” quarter million job gains, long-term US yields have risen only half as much as they did in the immediate aftermath of the Global Financial Crisis. Citi analysts believe the largest reason yields have not risen faster is the near-record level of COVID-19 infections globally, in spite of vaccine success in developed markets. In Citi’s view, it is only a matter of time and vaccinations before the global recovery accelerates and Citi analysts expect bond yields to reflect a substantial change in economic activity.
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Bonds: US Variable-Rate Bank Loans among Preferred Segments

Citi’s Global Investment Committee remains underweight global fixed income but have added to their allocation in US variable-rate bank loans.
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Higher Rates vs Global Recovery - Navigating the Volatility

With effective vaccinations surging and infection rates falling, Citi analysts expect global GDP growth to rebound to 5.5% in 2021 and 4.0% in 2022. Despite risk of inflation and higher yields, rising yields are unlikely to signal the end of the equity bull market, as earnings growth in 2021 and 2022 are expected to offset higher and more normal levels of interest rates rising from ultra-low levels. Citi’s Global Investment Committee thus increased its Overweight in Equities, reduced its Underweight in Bonds and reduced Gold from Overweight to Neutral. Real Estate Investment Trusts (REITs) remain Overweight while Cash remains Underweight.
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Bonds: Opportunities in TIPs, EM Debt and Variable-Rate Bank Loans

Citi’s Global Investment Committee remains underweight global fixed income, but sees an improving return outlook for TIPS and opportunities in EM debt and variable-rate bank loans.
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Rising Rates and Implications for Fixed Income Portfolios

Citi analysts expect the yield curve could continue to steepen and prefer a diversified set of fixed income alternatives that could help provide some mitigation to rising yields.
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High Alert for Return of Inflation Risks?

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.
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