Citigroup Ends Curve Trade as Fed Independence Concerns Ease

Citigroup strategists have closed out a key bond-market wager, citing diminished fears over Federal Reserve independence after last week’s policy decision.

The bank’s team, led by Dirk Willer and Adam Pickett, recommended clients take profits on a trade betting that 30-year US bonds would lag behind five-year securities. The position, opened in May at 40 basis points and expanded in August at 72, was exited at 60 after hitting a drawdown threshold.

The original call was rooted in expectations that President Donald Trump’s tax-and-spending policies would swell US debt, putting pressure on longer-dated Treasuries. The bet was reinforced in August when Trump’s attempt to oust Fed Governor Lisa Cook raised fears of political meddling that could undermine the central bank’s credibility in fighting inflation.

However, last week’s Federal Open Market Committee meeting eased those concerns. Fed Chair Jerome Powell managed to secure near-unanimous support for a quarter-point rate cut, with only Trump-appointed Governor Stephen Miran pushing for a deeper cut. Governors Christopher Waller and Michelle Bowman—who dissented dovishly in July—aligned with the majority this time.

“Since we initiated the trade in May, concerns about supply have moderated,” Citi strategists said. “The Fed meeting reduced worries about its independence at the margin.”

They added that previous easing cycles during soft-landing scenarios were shallow, offering limited scope for further curve steepening. “We’re stepping to the sidelines for now,” they concluded.