Research @ Citi Markets Edition: The Revenge of Risk Parity
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Feb 25, 2026 Alex Saunders, Head of Global Quant Macro Strategy at Citi, brings concise quantitative macro perspective. They discuss why Treasuries rallied recently. They unpack two Fed fat-tail AI scenarios and how risk parity may return with bonds as a hedge. Tactical equity signals and AI-driven tech jitters round out the conversation.
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Both AI Extremes Could Be Deflationary
- Two AI-driven Fed tails could both lead to cuts: an AI bubble bursting causing a negative wealth effect or AI success weakening the labor market.
- Both scenarios are deflationary and increase demand for U.S. bonds according to Dirk Willer.
Duration Returns As The Portfolio Hedge
- Bonds are likely to resume their role as a hedge because AI risks create a deflationary tail that benefits duration.
- Dirk Willer cites analogies to 2000–2002 where medium-duration Treasuries offset equity losses and says risk parity is back.
Stay Invested But Hedge With Duration
- Stay the course on equities but hedge with duration rather than abandoning positions outright.
- Dirk Willer recommends preferring front-end duration while acknowledging long-end suits cash-constrained investors when curves steepen.