Citi traders are advising clients to short bonds issued by CMA CGM, the French shipping conglomerate. This recommendation comes amidst a backdrop of deteriorating demand in the transport and logistics industry, as indicated by CMA CGM itself earlier this year. The company, controlled by billionaire Rodolphe Saade and his family, had warned in March 2023 of a significant decline in demand extending into 2023, attributing it to sharp decreases in freight rates, geopolitical tensions, and economic uncertainty. This slump had already led to a more than halving of its quarterly profit.
Simultaneously, the broader corporate bond market is experiencing shifts. Wall Street’s primary dealers have moved into a net short position in US corporate bonds for the first time in at least 25 years, a trend particularly notable in longer-dated securities. While some attribute this to banks reducing exposure due to stretched valuations, others suggest it reflects strong investor demand allowing dealers to quickly offload risk.
Citi itself reported a strong second quarter, with net income jumping 45% to $5.8 billion, or $3.15 per share, surpassing analyst expectations. Revenue reached $24.8 billion, a 14% increase from a year earlier and the highest quarterly revenue in a decade. Trading revenues were robust, with equities and fixed-income markets seeing jumps of 45% and 7% respectively. Investment banking revenue also surged 44% to $1.55 billion. However, investor concerns about rising expenses and a potentially weaker second half of the year led to a 4.2% fall in Citi's stock despite the positive earnings report.
