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global-value-rotation-trade-still-has-20-upside-citi-team-saysThe value rotation will likely be capped by the 10-year real yield reaching 0%, a level where the Federal Reserve will likely step in to prevent Treasuries from selling off further, according to Citi.
There are two scenarios which could reverse this trend, the first of which is a failure of the global economy to recover, the strategists suggested. The second: further central bank intervention, perhaps to stabilize disorderly bond markets, could also send real yields back down toward the minus 1% level, the strategists said.
“Value investors should enjoy this rotation while it lasts, but central bank obligations to finance extravagant fiscal policy mean that there is a natural cap on real yields,” the team wrote.