Citigroup worries about a ‘volatility event’ triggered by rising rates
Rates have been on the move recently, and Citigroup is getting concerned. The benchmark 10-year Treasury note yield hit a high of 4.31% last week — a level last seen almost five months ago, in early September — as renewed trade fears sparked a second wave of the “sell America” trade. Tensions eased after President Donald Trump backed down last week from imposing new tariffs on eight NATO members because of the dispute over Greenland, and yields retreated. On Monday, the 10-year traded about 1 basis point lower at 4.22%, while the 30-year Treasury bond yield dipped to 4.81%. At current levels, Citi head of U.S. equity strategy Scott Chronert thinks equities should be fine. Anything much higher, though, could spell trouble. US10Y 1Y bar US 10-year past 12 months “While equity markets have largely absorbed the 10 year yield increase from 3.94% to 4.25% since late October, a further long-end rate backup from here, while not currently expected by Citi, could trigger an equity valuation response. The cause would likely be renewed deficit concerns,” Chronert wrote to clients, calling this a “volatility event risk.” Chronert noted a pending Supreme Court decision could send yields higher, if the court strikes down the Trump administration’s high-tariff policy. “The removal of said tariff revenue offsets could resurface deficit concerns, putting more pressure on long-end rates,” the strategist said, warning that fiscal stimulus ahead of the midterm elections also poses a risk. “While we do not have a strong opinion on what could come to law, there is a clear ask for more fiscal stimulus. Proposals such as the $2,000 tariff dividend stimulus checks and a $600 billion increase in the defense budget for FY ’27 to $1.5 trillion exemplify this issue,” Chronert wrote. For their part, stocks were little changed to start Monday’s session. Investors have to make it through a busy week of earnings from some of the country’s largest companies, plus the first Federal Reserve meeting of 2026.
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