As surging bond prices drove an 11% global fixed income return over the past year, Citi analysts remain underweight on the asset class. US bonds remain an overweight, but only on a relative basis.
After reducing fixed income overweight to neutral in August, Citi’s Global Investment Committee (GIC) has dropped its allocation further to underweight as global bond yields fall to record lows.
As a greater proportion of the global bond market moves into negative yield, Citi analysts see decreased opportunities in the asset class and have turned neutral.
While the 3 month Treasury bill – 10 year Treasury bond yield curve has been inverted since March, the 2-10 year Treasury yield curve recently inverted for the first time since 2007, spooking investors into de-risking.
Fed Cuts Rates by 25bps, but US Stocks Slid as Powell Sowed Doubt on Future Rate Cuts
By Jessica Tan
Despite a 25bp rate cut by the Fed at its 31 July meeting, markets gyrated as Fed Chairman Powell failed to provide clear dovish commentary on the interest rate outlook. Citi’s view: The FOMC is unlikely to embark on a full cut cycle. Just one further 25bp cut is expected in 2019, most likely in September.
Stocks and bonds have largely disregarded their historically inverse relationship in 2019. Lingering market uncertainties are likely to keep pressure on core interest rates.
