Rates March Higher

Monthly Market Snapshot: March 2021

Highlights

Long-duration interest rates in the U.S. continued to climb higher in March. In the United States, the Dow Jones jumped 6.6% as confidence in the economic outlook gained steam. The S&P 500 rose 4.2% while the tech-heavy and interest-rate sensitive NASDAQ continued to lag with a 0.4% gain as the yield curve steepened. The nominal 10-year U.S. Treasury yield rose rapidly from 1.40% to 1.74% by month end.

The Federal Reserve seems satisfied with its current policy stance and is waiting to see actual economic data before changing its stance. However, financial markets will not wait for actual data to price in rising growth and inflation expectations. Technology shares have been sensitive to the rise in real yields as the space is often considered a long-duration asset. While Covid jitters have caused the rotation into Value stocks to pause some, we think the rotation has further room to run.

Citi Private Bank’s Global Investment Committee (GIC) made several asset allocation changes. The GIC decided to slightly increase its overweight to both UK stocks and U.S. Treasury-Inflation-Protected Securities (or TIPS). Gold was moved from an overweight to a neutral.