Citigroup: US Inflation Outlook Too Undervalued; Rate Traders Highlight Inflation Forwards (CITIG)

Markets are underpricing the persistence of US inflation, according to Citigroup’s rates desk, with trading opportunities pricing in a faster pickup in inflation more attractive than warranted. Benjamin Wiltshire, a Citigroup rates trading strategist, said expectations for inflation are likely to be revised slightly higher. He recommends buying five-year inflation forwards trading near 2.5%, below the roughly 3% level of the underlying inflation measured by the Federal Reserve. The remarks followed stronger-than-expected US employment data on February 9, 2026, that drove Treasury yields higher as traders cut the prospect of Fed rate cuts this year. On February 12, 2026, 10-year yields eased one basis point to 4.17% as traders awaited initial jobless claims and Friday’s January CPI figures. Wiltshire noted a reluctance to price additional inflation risk, given disappointing pass-through from last year’s tariffs, and said the inflation premium remains underpriced.