Citi Wealth Insights

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.

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.

Amid a revival of trade fears, Citi’s overweight stance on fixed-income quality may help navigate more volatile mid-year markets and potentially strengthening risk-adjusted returns.

A key slice of the Treasuries yield curve became the most inverted since 2007. Additionally, long-term yields on government bonds around the world are hitting some of their lowest levels in recent years.