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Citi Global Wealth PUTTiNG YoUr CASH To worK iN A HiGHer rATe eNviroNMeNT | | 35 Investments As the Fed funds rate is likely to be around 4.5% FiGUre 2. TreASUrY rATeS HiGH CoMPAreD To eXPeCTeD HeADLiNe iNFLATioN by the end of 2022, we think the rate-hiking 8 cycle will be nearing completion. As such, 2023 2yr US TIPS yield could bring a major opportunity to add shorter term, less volatile bonds to portfolios to lock in 6 peak interest rates. “Shorter term” in this case means any issues with four years to maturity or less, although this will depend on your overall 4 2yr US nominal investment objectives and suitability. If rates Treasury yield keep rising, longer duration bonds will suffer ) greater losses. % (2 d l The main reason we prefer shorter term e i instruments – in addition to their high historical Y 0 yields – is that typically mark-to-market losses experienced in these instruments will be earned back once the bonds repay at maturity. Below, -2 we present some alternatives to consider for investing in shorter term bonds. -4 US Treasuries '04 '06 '08 '10 '12 '14 '16 '18 '20 '22 US Treasuries come in many different maturities, but the shorter maturities offer high rates by Source: Bloomberg, as of 21 Nov 2022. All forecasts are expressions of opinion, are subject to change without notice and are not intended to be recent past standards. Also, Treasuries offer a guarantee of future events. Indices are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only more liquidity and generally more yield than and do not represent the performance of any specific investment. Index returns do not include any expenses, fees or sales charges, which would lower performance. Past performance is no guarantee of future results. Real results may vary. bank certificates of deposit (CDs), which typically Chart shows the nominal yield on 2-year US Treasuries and the yield on 2-year US Treasury Inflation Protected Securities (TIPS). can pay 50-100bps less than the same maturity Treasury. In addition, US Treasuries of course are issued by the US government so, unlike bank CDs, do not carry credit risk. These nominally high risk-free US government rates are also high compared to expected headline inflation as measured by TIPS – FIGURE 2.

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