Citigroup Issues $800 Million Range Accrual Notes With Contingent Interest Tied to 10-Year Treasury Rates

Structure and Terms of the Range Accrual Notes

The notes issued by Citigroup are classified as unsecured senior debt securities with a stated principal amount of $1,000 per note. The pricing supplement, filed pursuant to Rule 424(b)(2) under the Securities Act of 1933, establishes the fundamental terms governing these instruments. The notes will mature on July 30, 2041, unless the issuer exercises its early redemption right, which becomes available beginning approximately two years after the issue date on or after July 30, 2028. Interest payment dates occur quarterly on the 30th day of January, April, July, and October, with the first coupon payment scheduled for October 2026 and the final payment due at maturity or upon early redemption, as applicable.

The day count convention employed for calculating interest accruals follows the 30/360 standard, a method commonly used in corporate debt markets. The notes are unsecured obligations of Citigroup Inc., meaning they are not backed by specific collateral and are subject entirely to the credit risk of the issuer. All payments on the notes, including principal and interest, depend on Citigroup's ability to meet its obligations. The pricing supplement explicitly states that investors must be willing to accept limited or potentially no liquidity in the secondary market and acknowledge the risk of total loss should Citigroup default on its obligations.

Variable Coupon Mechanics and the CMT Rate Condition

The distinguishing feature of these notes lies in their variable coupon structure, which is contingent on the daily level of the 10-year constant maturity Treasury rate. The coupon payment for each interest payment date is calculated by multiplying the stated principal amount of $1,000 by the applicable variable coupon rate and the relevant day count fraction. The variable coupon rate is determined by taking the contingent rate of 9.00% per annum and multiplying it by the ratio of accrual days to elapsed days within each accrual period. An "accrual day" is defined as any calendar day on which the 10-year CMT rate falls within the specified range of greater than or equal to 0.00% and less than or equal to 5.50%.

The accrual condition—the mechanism determining whether interest accrues on any given day—creates material variability in the actual coupon payments investors receive. If the 10-year CMT rate moves outside the 0.00% to 5.50% range on a particular day, that day is not counted as an accrual day, reducing the numerator in the variable coupon calculation and correspondingly lowering the quarterly coupon payment. In periods where the CMT rate remains above 5.50% or below 0.00% for extended durations, the variable coupon rate may be substantially reduced. The filing explicitly warns that the notes may pay low or no interest for extended periods or even throughout the entire term of the notes if market conditions cause the CMT rate to remain outside the accrual range consistently.

Interest Payment Schedule and Accrual Period Mechanics

Interest accrual periods run from and including one interest payment date (or, for the first period, from the issue date) through but excluding the next interest payment date. For non-business days, including weekends and U.S. government securities market holidays, the 10-year CMT rate is assumed to be the same as on the immediately preceding business day. This treatment prevents gaps in rate observation while accommodating market closures. Additionally, for the final four U.S. government securities business days of each accrual period, the CMT rate is not observed and is assumed to remain at the level from the day immediately preceding this unobserved period, a convention that stabilizes the final coupon calculation.

The filing establishes that coupon payments are made to registered holders of the notes as of the close of business on the business day preceding each interest payment date, with the exception that coupon payments due at maturity or upon early redemption are paid to the holders on the redemption date itself. Should any scheduled interest payment date fall on a non-business day, the payment is made on the next succeeding business day with no additional interest accruing for the delay. This business day convention aligns with standard market practices for U.S. Treasury-linked securities and ensures efficient payment processing.

Call Right and Early Redemption Provisions

Citigroup retains an issuer call right that becomes exercisable on any interest payment date beginning approximately two years after issuance, or specifically on or after July 30, 2028. When exercising this right, the company must provide not less than five business days' notice to noteholders. Upon redemption, Citigroup will pay investors 100% of the stated principal amount ($1,000 per note) plus any accrued and unpaid coupon payment due on the redemption date. This structure allows the issuer to eliminate its obligations should market conditions become favorable—for instance, if the 10-year CMT rate persistently exceeds the 5.50% accrual ceiling, rendering the notes economically unattractive to hold for Citigroup from a funding perspective.

The early redemption right creates an asymmetric payoff profile for investors. If interest rates rise significantly and the CMT rate remains above the 5.50% threshold for extended periods, noteholders would receive minimal or zero interest, but Citigroup would likely retain the notes rather than redeem them early. Conversely, should rates fall substantially and the CMT rate stays within or below the 5.50% ceiling for most days, making the notes valuable to investors, Citigroup could choose to redeem the notes and refinance at lower cost. This embedded call option benefit accrues entirely to the issuer and represents a cost to the noteholder that is reflected in the pricing of the security.

Valuation and Pricing Information

The notes were priced on July 27, 2026, and issued on July 30, 2026. The issue price was set at $1,000 per note, with a total principal amount of $800 million offered. Citigroup Global Markets Inc. (CGMI), an affiliate of Citigroup Inc., acted as the sole underwriter on a principal basis and received an underwriting fee of $25.00 per note, totaling $20,000 on the full offering. The net proceeds to the issuer were therefore $975.00 per note, or $780 million in aggregate principal amount.

The pricing supplement discloses that on the pricing date, the estimated value of the notes based on CGMI's proprietary pricing models and internal funding rate was $940.225 per note—materially below the $1,000 issue price. Citigroup explicitly cautions that this estimated value is not an indication of actual profit to CGMI or its affiliates, nor does it represent the price at which CGMI or any other party would be willing to purchase the notes in the secondary market at any time after issuance. The company further notes that CGMI and its affiliates may profit from hedging activity related to the offering independent of the notes' market performance, creating potential conflicts of interest between the underwriter's interests and those of noteholders.

Credit Risk and Lack of Government Insurance or Guarantee

The pricing supplement emphasizes repeatedly that all payments on the notes are subject to Citigroup Inc.'s credit risk and that investors bear the full default risk of the issuer. The notes are explicitly characterized as unsecured senior debt obligations, meaning they are not backed by any pledge of specific assets or collateral. In the event of Citigroup's insolvency or material financial distress, noteholders would compete with other senior unsecured creditors and would rank below secured creditors and deposits in any distribution of assets. The filing contains a prominent disclosure that the notes are not bank deposits, are not insured or guaranteed by the Federal Deposit Insurance Corporation, and are not obligations of or guaranteed by any bank, removing any potential investor confusion about safety or government backing.

The lack of liquidity in secondary markets for these structured products compounds the credit risk. The pricing supplement explicitly states that the notes will not be listed on any securities exchange, and investors must be willing to accept an investment that may have limited or no liquidity. Should an investor wish to sell the notes prior to maturity, the ability to do so and the price obtained would depend on finding a willing buyer in the over-the-counter market, with no guarantee that such a buyer would exist or would offer a favorable price. This illiquidity risk is particularly acute for investors who experience a change in circumstances and wish to exit the position before the maturity date or before Citigroup exercises its call right.

Assumption of Obligations and Potential Subsidiary Substitution

The pricing supplement contains a provision allowing any wholly owned subsidiary of Citigroup Inc. to assume the obligations under the notes upon not less than 15 business days' notice and without requiring consent from any noteholder. Should such a substitution occur, Citigroup Inc. would be released from its obligations under the notes, subject to certain conditions. The key condition specified is that Citigroup Inc. must fully and unconditionally guarantee all payments under the notes following such assumption by the subsidiary. This provision preserves the credit quality of the obligation at the Citigroup group level even if the direct obligor changes, but the substitution right remains an operational change that noteholders have no ability to prevent or approve.

Discontinuance and Modification Risk Related to the 10-Year CMT Rate

The pricing supplement references potential modifications and discontinuance events affecting the 10-year constant maturity Treasury rate methodology. The accompanying prospectus supplement and prospectus, both dated February 25, 2026, contain detailed discussion under the heading "Discontinuance of the 10-year CMT Rate." While the pricing supplement does not fully elaborate on these provisions, the existence of such language indicates that Citigroup has contemplated the possibility that the U.S. Department of the Treasury might cease publishing the 10-year CMT rate or modify its calculation methodology. Should such an event occur, the pricing supplement or prospectus presumably contains procedures for determining an alternative rate or adjusting the notes' terms, though the specific mechanics are not fully set forth in the excerpted filing provided. Investors should review the full prospectus documents to understand how such a discontinuance event would be handled.

Hypothetical Coupon Payment Examples and Investor Considerations

The pricing supplement references a table of hypothetical examples showing how variable coupon payments would be calculated based on different numbers of accrual days within an accrual period. While the specific numerical examples are not fully reproduced in the filing excerpt, the document establishes that for illustrative purposes, a hypothetical accrual period containing 90 elapsed days with a day count fraction of 90/360 would be used to demonstrate the mechanics. These examples are critical for investors to understand the potential range of coupon payments they might receive under various interest rate scenarios. An investor reviewing such examples would see, for instance, that if 50 of 90 elapsed days are accrual days (when the CMT rate is within range), the variable coupon rate would be approximately 5.00% annually rather than the full 9.00% contingent rate, resulting in a substantially reduced quarterly payment.

Investors considering these notes must carefully evaluate their interest rate outlook and risk tolerance. The notes offer attractive upside if the 10-year CMT rate remains stable and within the 0.00% to 5.50% range, potentially delivering high current income at the 9.00% contingent rate. However, should the CMT rate move above 5.50%—which could occur if the Federal Reserve raises rates significantly or inflation expectations rise sharply—investors would face the risk of receiving minimal or no interest while holding an unsecured debt security of a major financial institution. The asymmetric risk profile, combined with the issuer's call right and the illiquid nature of the instrument, makes these notes suitable primarily for sophisticated investors with specific views on interest rate ranges and a willingness to accept structured product complexity.