What happened

Shares of Citigroup (C 1.23%) were down as much as 5% on Friday afternoon on investor fears that falling bond yields and the potential for a slowing economy will eat into results. Citi also faced some company-specific issues with its Asian equity group that weighed on shares.

So what

Bank stocks including Citigroup were under pressure on Friday after the Federal Reserve indicated that it intends to take a more cautious approach on interest rates due to fears of economic weakness. The comments led to a rally in bond prices and resulted in the yield on a two-year Treasury bond rising above the yield on a 10-year, a so-called inverted yield curve.

A stock broker panics looking at a falling chart

Image source: Getty Images.

If history is a guide, an inverted yield curve is an indicator that a recession is on the horizon. Inverted yield curves also make lending less lucrative for banks.

Citi said Friday morning that it has ousted eight equity traders in Hong Kong and suspended three others after an internal investigation. Citi is one of the most international of the U.S. banks, deriving 40% of consumer banking revenue from outside of the U.S., and it can ill afford to see its reputation take a hit in Asia.

Check out the latest earnings call transcript for Citigroup.

Now what

It's worth noting that even after Friday's decline, shares of Citi are still up 17% year to date and 40% over the past three years. While safeguards are in place that should hopefully prevent a repeat of the 2008 crisis that almost drove Citigroup out of business, the risk of increasing economic headwinds that could stunt bank growth and further pressure shares is significant.

Given the amount of uncertainty on the horizon, it's a dangerous time to go bargain hunting.