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Citi Global Wealth reGioNAL ASSeT CLASS PreviewS | | 91 Investments Fixed income we anticipate an increase in 2023 that will increase investors’ appetite for higher quality issuers. We thus remain underweight European sovereign Developed European investment-grade and sovereign yields soared in 2022 and credit. as central banks hiked rates to tackle much higher-than-anticipated inflation. FiGUre 2: eMeA FiXeD iNCoMe YieLDS (%) After eight years, the ECB ended its negative rates experiment and two of its pandemic-era asset-buying programs. Ten-year Bund yields surged from -0.18% to 2.41% before slipping below 1.98% in late November. Swiss 10y Sov 1.01 The Bank of England (BoE) had already started hiking rates in December Germany 10y Sov 2.43 2021. This initiated a bear market in bonds, with 10-year UK gilt yields Netherlands 10y Sov 2.25 surging from 0.97% to a peak of 4.50% in late September. The rise was Austria 10Y Sov 2.43 exacerbated by unfunded tax cut proposals from short-lived prime minister Belgium 10Y Sov 2.45 Liz Truss. However, a change of PM, finance minister and a new autumn France 10y Sov 2.54 budgetary statement reassured financial markets, with 10-year gilt yields dropping toward 3.14%. Ireland 10y Sov 2.55 Portugal 10y Sov 3.91 We anticipate a further withdrawal of liquidity in 2023 as both the ECB Euro-Aggregate IG Index 3.14 and BoE shrink their balance sheets. We see policy rates peaking at 2.5% and 4.25% respectively. Lower inflation and restrictive policy stances UK 10y Sov 2.97 throughout 2023 will likely result in range-bound euro area and UK Euro IG Corporates 3.14 sovereign yields. Italy 10y Sov 3.91 However, recessionary conditions could create opportunities for local Spain 10y Sov 3.97 investors keen to increase their exposure to short-dated sovereign bonds Greece 10y Sov 4.24 while reducing portfolio volatility. By end 2023, we see 10-year yields at GBP IG Corporates 5.48 2.25%-2.50% for Bunds and 3.50%-3.75% for gilts. GBP HY Corporates (ex-financials) 7.79 For European corporate bonds, investors spent much of 2022 seeking out Euro HY Corporates 10.35 more creditworthy issuers. In 2021, they did the opposite, prioritizing yield Euro Capital Securities 10.80 over ratings. Corporate earnings were resilient in the first half of 2022, with companies refinancing most of their maturing debt early and at lower yields. 0 2 4 6 8 10 12 The second half was a different story in the European investment-grade market, amid a significant reduction in bond supply. Source: Bloomberg Barclays, Bloomberg and The Yield Book, as of 22 Nov 2022. Past performance is no guarantee of future returns. Real results may vary. Indices are unmanaged. An investor cannot invest directly We anticipate this trend will likely continue in 2023. On the one hand, in an index. They are shown for illustrative purposes only and do not represent the performance of any specific fundamentals remain positive, with leverage ratios at an all-time low and investment. Past performance is no guarantee of future results. interest rate coverage ratios at all-time highs. On the other, profit margins are coming under pressure from higher debt servicing and input costs, which is impacting firms’ net income. From record low default rates in 2022,

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