Citi Australia expands fixed income access to deliver yield in a low-rate environment

Citi Australia has today announced it is expanding access to fixed income products and services, in response to client demand for assets that will deliver yield while offering some protection from market shocks in today's volatile environment.

Through the expansion, Citi will offer high yield bonds, hybrids and capital notes to its wholesale client base. Citi will also provide access via the primary market, meaning Citi's clients will have an opportunity to obtain preferential pricing before a bond is issued and traded on the secondary market.

This follows strong client demand for fixed income solutions, with Citi's bond transaction volume in January-February 2020 increasing by 90% compared to the same period in 2019. Additionally, in September, Citi hit an all-time record for number of fixed income transactions, and fixed income assets under management increased approximately 32% from September 2019.

Commenting on the launch, Citi Australia Head of Wealth Management Product Marcus Christoe said "Australian investors face a dual challenge this year: seeking returns in a low rate environment, and protecting their portfolios from the ongoing volatility associated with Covid-19. Hybrids, high yield bonds and capital notes can offer real value, as they sit somewhere in between equities and traditional bonds on the risk curve."

Citi Australia will be offering high-yield bonds within the BB+/BB/BB- range. The bonds are researched by Citi's global team, and handpicked to match risk appetite. The products will only be made available to wholesale investors.

"High yield bonds typically offer higher coupons than government bonds, and have the potential for greater appreciation if the issuing company performs well. Conversely, there is greater potential for loss if the company does not perform well. The high yield sector also has lower correlation to other sectors of the fixed income market, which can help ensure strong diversification in a portfolio," Mr Christoe said.

The hybrids offered by Citi are over the counter hybrids available via the global market. This expands investor access beyond Australia's $1.62 trillion bond market to the global $130.68 trillion bond market.

"Access to hybrids is a problem for Australian investors to date, with our limited local market often centred on the financial sectors. For investors looking for diverse options, the global over the counter market is a much larger and more liquid market than the ASX-listed hybrids offering."

According to Citi, the move is a step towards solving Australia's diversification problem.

"Australians typically look to three asset classes: property, equities and cash. We know that today more than ever this approach isn't working and it's time for Australians to look into fixed income as a way to improve diversification, seek a regular income stream and potentially enhance their returns," Mr Christoe added.