Citi is reportedly blocking debt deals with firms that kept the bank’s accidental $500 million payout

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  • Citigroup is blocking investment firms that wouldn’t return an accidental Revlon wire from future debt offerings led by the bank, according to a Bloomberg report.
  • Citi accidentally transferred nearly $900 million to Revlon lenders last year when it meant to transfer only $8 million.
  • A judge ruled last month that Citi can’t recoup the $500 million 10 investment firms refused to send back.
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A botched debt repayment by Citigroup is now being used by the bank as reason to block certain investment firms from future debt offerings, according to a report from Bloomberg.

In what is considered to be “one of the biggest blunders in banking history,” Citigroup accidentally sent nearly $900 million to Revlon lenders last year when it meant to only send about $8 million.

While some firms returned the money to Citigroup, others didn’t, with 10 investment firms holding onto more than $500 million of the nearly $900 million accidental payment. A federal judge ruled last month that those investment firms do not have to return the money to Citigroup. Citigroup is appealing the decision.

Now, Citigroup is retaliating by blocking these 10 lenders from participating in certain debt offerings led by the bank, Bloomberg reported, citing people with knowledge of the matter. The investment firms targeted by Citigroup include Brigade Capital Management, HPS Investment Partners, and Symphony Asset Management, according to the report.

It’s unclear whether the retaliation by Citigroup will be a big blow for the targeted firms, but it’s hard to avoid Citigroup in debt markets given that it is one of the largest underwriters of new bonds and loans, according to Bloomberg.

However, the targeted firms can still participate in debt offerings led by Citigroup if the issuer specifically requests for their participation, Bloomberg reported.

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The bond market rout has brought the worst start to the year for fixed income investors in 6 years

traders NYSE
  • Bond markets are suffering the worst start to the year since 2015, as investors sell off their debt holdings.
  • The Bloomberg Barclays Multiverse index has lost 1.9% since the end of 2020.
  • Longer-term US Treasuries have lost more than 9% in total return terms.
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Bond investors are witnessing the worst start to the year since 2015, as they sell off their debt on expectations that coronavirus vaccines will successfully aid recovery in the US economy, but lead to higher inflation, the Financial Times reported.

The Bloomberg Barclays Multiverse index, that tracks $70 trillion worth of debt, has dropped 1.9% in value, accounting for price changes and interest payments, since the end of 2020, the FT said.

If sustained at this level, it would mark the bond market’s worst quarterly performance in three years and the sharpest setback to the start of the year since the first quarter of 2015.

Longer-term US Treasuries have lost more than 9% in total return terms, according to a Bloomberg Barclays index of US government bonds.  The 30-year US yield crossed the 2% threshold last reached in the middle of February 2020, reaching a closing point of 2.003%. Yields on 10-year government debt are also rising, having last jumped 1.9% to 1.4% on Wednesday, and even some 5-year yields are moving higher.

Bank of America said this week US yields have already reached its year-ahead target. “This is now realized, but it is over? The biggest risks to current trends include the long-term support levels nearby (yield resistance),” the bank said  in a note on Monday.

Unless there is a sustained surge in inflation, rising bond yields will have a minor impact on stocks, said Richard Saperstein, chief investment officer at Treasury Partners. “Bond yields are rising right now because the market is pricing in the reopening of the economy for the post COVID-19 world and accelerating economic growth,” he said. “Widening credit spreads will likely have a greater impact on P/E’s than rising rates.”

Saperstein expects an inflation spike from March to May, because of economic scarring and elevated levels of unemployment, but does not see a sustained risk in 2021. “My advice for investors is to keep their fixed income durations shorter right now, because the income return is not enough to offset the price declines from rising rates. Any re-investments from fixed income proceeds should be limited to 3-year maturities.”

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