Seeking bond income amid Red Sea shipping attacks

SUMMARY

Geopolitics is once again unsettling investors amid attacks on a vital maritime trade route. But history shows that these episodes seldom have enduring effects on markets, so we reiterate our positive investment case.


Since peaking over 5% in late October, 10yr US Treasury (UST) yields have fallen on lower inflation readings and a less hawkish Fed.

After the New Year, bullish economic data and a realization that a March rate cut was uncertain initiated market reversals. The S&P 500 fell roughly 2.5% the first week of 2024 before closing at a record high Friday. Bond yields climbed higher as the 10yr UST traded back above 4%.

The narrow pass at Bab-el-Mandeb in the Red Sea is now blocked as violence has erupted in the region. Houthi rebels in Yemen have attacked maritime vessels passing close to shore. In response, the Combined Maritime Forces (led by the US and UK) have undertaken air and missile strikes in Yemen.

As a result, the number of vessels transiting the strait has plummeted by more than 50%. The owners of more than 2,300 merchant vessels restricted travel and insurers boosted rates 10-fold or stopped writing policies altogether.

The initial market response to the October 7th Hamas attack was a large increase in both Baltic dry and wet shipping costs. Subsequently, the dry container shipping prices rapidly normalized, while the dirty wet shipping of crude oil have continued to rise. At the same time, the price of Brent crude oil has actually fallen since the later Red Sea conflicts erupted.

Despite the importance to global trade of the Red Sea, we expect the final impact on consumers and markets around the world to be modest, in the aggregate. As we have written before, most geopolitical crises do not have durable market impacts including, for now, the war in the Middle East.

The combination of both strong economic data (higher long-dated yields) and Fed easing (lower short-rates) has driven a bull steepening of the US Treasury curve that has been inverted since mid-2022. In fact, US 2s10s curve traded this week at the “least inverted” it has been for the entire cycle. This is a very welcoming sign and is consistent with the guidance in our 2024 Wealth Outlook regarding moving out of money markets and into the intermediate part of the yield curve.1

Citi Wealth’s Global Investment Committee (GIC) holds a 12% allocation to both intermediate corporates and securitized credit. These ~4-year duration assets are yielding about 5-6% on average.

OUTLOOK

Wealth Outlook 2024

Our global economic outlook for the year ahead

 

Growth will slow in early 2024, but we see no synchronized collapse across the global economy, as many fear. 

Contact us

Contact us

To help put you in touch with the right Private Bank team, please answer the following questions.

Are you an existing Private Bank client?

Are you an existing client?

Please fill out the form, so we can contact you.

I consent to the use of my personal information (name, telephone number and email address) by Citi Private Bank for the purpose of contacting me to send me marketing information about Citi Private Bank's wealth management products and services. I understand that my information will be used in accordance with the relevant  privacy statement for my location. I also understand I can withdraw this consent to be contacted by phone or email at any time by emailing donotspam@citi.com

Please consent to the terms and conditions to continue

What profile best describes you?

I would like to discuss an investment (USD) of

I would like to discuss an investment (USD) of

I would like to discuss an investment (USD) of

Thank you for your interest in Citi Private Bank.

Our services have a minimum investment level of $5 million.

Based on the information provided, we believe that a Citigold relationship may be most appropriate for your needs.

To find out more: Visit Citigold

Thank you for your interest in Citi Private Bank.

Our services have a minimum investment level of $5 million.

Based on the information provided, we believe that a Citigold relationship may be most appropriate for your needs.

To find out more: Visit Citigold Private Client

I am interested in

Aircraft Finance
Art Advisory & Finance
Banking
Custody
Family office
Investments
inerested_in
Lending
Real Estate
Trust

Please select at least one.

I am interested in

Aircraft Finance
Art Advisory & Finance
Banking
Custody
Family office
Investments
Law Firm
Lending
Real Estate
Trust

Please select at least one.

Job title & Company

Job title & Company

Location

Location

How would you like us to contact you?

How would you like us to contact you?

Please enter your contact details

Please enter your contact details

How did you hear about us?

How can we help you?

I consent to the use of my personal information (name, telephone number and email address) by Citi Private Bank for the purpose of contacting me to send me marketing information about Citi Private Bank's wealth management products and services. I understand that my information will be used in accordance with the relevant privacy statement for my location. I also understand I can withdraw this consent to be contacted by phone or email at any time by emailing donotspam@citi.com

Please consent to the terms and conditions to continue

How did you hear about us?

How can we help you?

I consent to the use of my personal information (name, telephone number and email address) by Citi Private Bank for the purpose of contacting me to send me marketing information about Citi Private Bank's wealth management products and services. I understand that my information will be used in accordance with the relevant privacy statement for my location. I also understand I can withdraw this consent to be contacted by phone or email at any time by emailing donotspam@citi.com

Please consent to the terms and conditions to continue

Thank you for your interest in Citi Private Bank. A member of our team will be in touch with you shortly.