Inflation: Navigating Higher Bond Yields
Political developments in the UK and US have also contributed to a pickup in inflation. The 16% fall in Sterling since the UK referendum has led Citi analysts to raise their 2017 and 2018 CPI inflation forecasts for the UK to 2.7% and 3.4% respectively, up from 0.6% in 2016. Meanwhile, following the election of Trump as US President, Citi analysts note that the combination of fiscal loosening, trade restrictions and anti-immigration policies could raise US inflation.
Expectations of rising inflation have driven bond yields higher but policy and growth uncertainties are reasons to still own bonds. Investors would need to keep bond durations shorter and be more selective.
- Citi Analysts forecast 10-year US Treasury yields to reach 2.60% by end-2017
- Bond investors may want to consider keeping bond duration shorter, at around 7 years
- Look for opportunities in US corporate bonds, European banks as well as the global metals and mining sectors
- Within equities, rising yields are expected to benefit the financial sector
Citi Outlook 2017: Reflation, Rotation & Risks
Last year’s UK referendum and US presidential election were surprising and in fact, little short of unforgettable. The results now behind us, what lies on the investment horizon for 2017?
On 2 February in London, our specialists will present Citi’s Outlook for the year ahead. We’ll also be hearing from key fund house partners, who’ll discuss the risks and prospects that lie in store for your investments.
Please register for the event via your Relationship Manager. If you are interested in becoming a Citigold client and would like to register your interest for the event, please call 0207 500 1992 (9AM – 5PM Mon-Fri).
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