Citigroup Warns History No Guide in Policy Shift: Credit Markets

History suggests that the corporate bond market will be just fine when the Federal Reserve starts raising interest rates next year. Citigroup Inc. says investors shouldn’t be so sure this time.

Each of the five times the Fed shifted rate policy since 1980 and raised its benchmark, the extra yield investors demand to own corporate bonds instead of government debt narrowed in the next six months as accelerating growth bolstered optimism, analysts at the New York-based bank wrote in a Sept. 21 note. After six years of short-term rates near zero, investors this time should be prepared for a flight by yield-seeking “tourists” that may overpower any benefits, they said.