(Bloomberg) — Citi Personal Financial institution is advising its wealthiest prospects to place more cash into U.S. investment-grade company bonds and financial institution loans, whereas staying underweight authorities debt and equities.
The Citigroup (NYSE:) unit that caters for purchasers with a minimal $10 million additionally favors emerging-market bonds, that are more likely to profit because the Federal Reserve cuts rates of interest, stated Roger Bacon, head of investments Asia Pacific primarily based in Hong Kong.
“Extending period is one thing the purchasers are very centered on,” Bacon stated in an interview in Singapore. “We’re rising allocation to U.S. investment-grade company debt. We’re rising consumer allocations to sure components of emerging-market debt.”
The typical Citi non-public consumer’s balanced portfolio now has a 1.5% chubby in income-producing securities, and a median underweight of two% for shares, Bacon stated, citing knowledge as of June.
Bonds have rallied all over the world this 12 months because the Fed has signaled a willingness to ease coverage amid indicators international development is faltering. A Bloomberg Barclays (LON:) index of U.S. investment-grade company bonds has returned 10% over the previous 12 months, whereas the of shares has gained simply 3%.
Bacon says the Fed will most likely lower its benchmark price by 25 foundation factors in July and by the identical quantity in September, which matches the pricing given by fed fund futures. “We are actually within the chopping a part of the cycle, which we wouldn’t have stated 12 months in the past,” he stated.
Citi Personal Financial institution additionally favors the debt of corporations which might be domestically centered, comparable to these within the meals and beverage business, that are more likely to outperform amid the U.S.-China commerce struggle.
“We’ve been taking the chance to boost high quality inside purchasers’ fixed-income portfolios,” Bacon stated.
Listed below are a few of his different views:
- Agency has a “slight bias” for U.S. excessive yield over equal European paper in a balanced mannequin portfolio, and underweight authorities debt
- Prefers U.S. financial institution loans that are much less risky than junk bonds
- Citi stays “very constructive” on Asia and the area’s equities
- Likes yen as a “retailer of worth” amid ongoing market volatility and U.S.-China commerce tensions
- Sees scope for Chinese language authorities to chop the required deposit reserve ratio for banks by a full share level or extra within the coming months
- “By way of the Chinese language foreign money, we expect that 7 will likely be very, very strongly defended”
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