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Please be advised that future verbal and written communications from the bank may be in English only. These communications may include, but are not limited to, account agreements, statements and disclosures, changes in terms or fees; or any servicing of your account.

Por favor, tenga en cuenta que es posible que las comunicaciones futuras del banco, ya sean verbales o escritas, sean únicamente en inglés. Estas comunicaciones podrían incluir, entre otras, contratos de cuentas, estados de cuenta y divulgaciones, así como cambios en términos o cargos o cualquier tipo de servicio para su cuenta.

Informamos que as futuras comunicações do banco, verbais e escritas, podem estar disponíveis apenas em inglês. Essas comunicações podem incluir, entre outras, acordos de conta, extratos de conta e divulgações, alterações aos termos ou tarifas, ou qualquer tipo de serviço pertinente à sua conta.

仅此通知,本行即日起发出的口头及书面通信可能将只提供英文版本。这些通信可能包括但不限于账户协议,账单和通知,条款或费用变更;或任何为您账户提供的服务。

Please be advised that future verbal and written communications from the bank may be in English only. These communications may include, but are not limited to, account agreements, statements and disclosures, changes in terms or fees; or any servicing of your account.

Por favor, tenga en cuenta que es posible que las comunicaciones futuras del banco, ya sean verbales o escritas, sean únicamente en inglés. Estas comunicaciones podrían incluir, entre otras, contratos de cuentas, estados de cuenta y divulgaciones, así como cambios en términos o cargos o cualquier tipo de servicio para su cuenta.

Informamos que as futuras comunicações do banco, verbais e escritas, podem estar disponíveis apenas em inglês. Essas comunicações podem incluir, entre outras, acordos de conta, extratos de conta e divulgações, alterações aos termos ou tarifas, ou qualquer tipo de serviço pertinente à sua conta.

仅此通知,本行即日起发出的口头及书面通信可能将只提供英文版本。这些通信可能包括但不限于账户协议,账单和通知,条款或费用变更;或任何为您账户提供的服务。

Crowds of people and traffic congest 5th Avenue, Manhattan, New York City

Perspectives

From rescue to rescue

Steven Wieting

By Steven Wieting

Chief Investment Strategist and Chief Economist

March 22, 2021Posted InInvestment Strategy

Who needs the rescue now, the economy or the bond market?

History’s largest fiscal stimulus (14% of US GDP) at a time when vaccines are putting down the COVID pandemic should vault US growth to 6% or above in 2021 and boost imports sharply. Global growth may eclipse 5% this year and sustain a 4% rate through 2022 or longer.  

US inflation should rise above 3% over the remainder of 2021.  

The inflation outlook for the longer-term depends on how gradually central banks move away from monetary policies suited for economic collapse and the global health emergency.

The Federal Reserve says its key policy rate is expected to average 2.5% over the longer-term. This is very likely an exaggeration.  However, given the central bank’s higher inflation target and an eventual normalization of term premia, 2.5% does seem a reasonable average for 10-year US Treasury yields in the coming few years. 

In the near term, a large rise in US bond yields relative to other developed markets and a plunge in hedging costs suggests upward yield pressures will soon slow.

In 2019, we added gold as a tactical overweight on plunging global interest rates. With long-term yields reversing their plunge after gold has appreciated sharply, we’ve eliminated the overweight. We do see  gold and other real asset returns supported over a longer-term time frame as central banks seek higher inflation to ease debt burdens.

We’ve raised tactical allocations to UK shares and US Treasury Inflation Protected Securities, pushing up both our global equity and bond allocations slightly. UK equities have been hamstrung by a heavy cyclical composition of industries most exposed to COVID disruptions.  The now largely resolved political uncertainties of the past five years have left UK valuations cheap.  Shares trade at 14X 2021 EPS with a 4% average yield.

Like most bonds, TIPS have a high valuation. Nonetheless, the 14% drop in long-term US Treasury prices in the year-to-date has improved the return outlook. Investors will directly earn gains in US consumer prices. The TIPS inflation benchmark trends higher than the Fed’s preferred inflation gauge.  We see TIPS as a low risk asset within our deeply underweight global fixed income allocation (now -9.5%).  

The Fed’s decision to end emergency rules allowing US banks to buy Treasuries with lessoned capital requirements may slightly exacerbate the bond rout.  At the margin, however, it is more likely to raise customer funding costs and put even more downward pressure on deposit rates.

We discuss Brazil’s struggle with a Covid surge and populist pushes below and in a separate LATAM bulletin.

Download: Quadrant