Citi Wealth Insights

Citi analysts see potential opportunities in US high yield (HY) corporates, and in particular – HY corporate bonds that were once investment-grade but have since been downgraded.

Following a confirmed COVID-19 treatment, global yields may rise. Equities may also rally modestly on a post COVID-19 recovery, but performance dispersion may see winning and losing sectors rotate.

Within global fixed income, Citi analysts are overweight US bonds such as Treasuries and Investment Grade debt, and USD Emerging Market Debt. Global High Yield remains neutral.

With central banks rolling out unprecedented levels of monetary easing, interest rates are expected to stay lower for longer. Cyclical-oriented sectors in US Investment Grade corporates may benefit in a new economic cycle, while Emerging Market Debt offer compelling valuations.

The ECB boosted its PEPP and fully endorsed the recently proposed EU Recovery Fund. In Citi’s view, sentiment towards European assets is expected to improve.

The US Federal Reserve’s purchases of corporate bond ETFs alleviates liquidity concerns that created sharp price declines during March-April sell-off.