Investing.com -- Citi analysts said in a note Friday that bonds will outperform stocks if the U.S. imposes significant tariffs, with gold also benefiting while risky assets struggle.
The bank’s regime model examined how different levels of tariff increases would impact various asset classes, running scenarios with no tariffs, a 10% increase, and a 20% increase in the average effective tariff rate.
"Risky assets do poorly, bonds do well, as does gold," Citi analysts noted. The report highlighted that while tariffs weigh on global growth, U.S. and core European bonds tend to benefit, and commodities like base metals struggle while energy remains mixed.
Citi’s base-case scenario assumes a 10% increase in tariffs, aligning with its economists’ expectations. In this case, global equities would likely underperform, while U.S. Treasuries (UST) would fare well.
However, the bank cautioned that 2025 market behavior has not followed prior patterns, with global stocks holding up better than expected and U.S. equities lagging.
"[It is] not 100% obvious what exactly is priced in," Citi analysts warned, pointing out that European and Chinese equities have outperformed despite tariff risks, while U.S. importers from China have underperformed.
With uncertainty surrounding both policy announcements and market reactions, Citi is taking a cautious stance: "We stay close to home into April," preferring to limit risk exposure before tariff details emerge.
The bank suggests staying neutral on equities, maintaining an overweight position in Bunds over JGBs, and keeping a long position in gold while remaining underweight on credit.
Ultimately, Citi’s view underscores that bonds, especially U.S. Treasuries, remain a safe haven in a high-tariff environment, with gold offering additional protection against market volatility.