UBS says bond market relief from falling yields will not offset deeper structural pressures
UBS has said recent falls in bond yields and oil prices offer only temporary relief, with structural forces likely to keep long-term borrowing costs high, as it raised its forecast for long-term US Treasury yields.
The bank now expects the 30-year Treasury yield to reach 4.9% by March 2027, up from a previous forecast of 4.5%.
The Swiss investment bank said Federal Reserve uncertainty under Chair Kevin Warsh was lifting risk premiums, as the central bank has placed less emphasis on forward guidance.
The bank also pointed to large US technology companies issuing debt to finance artificial intelligence investment, creating competition for investor capital.
Persistently large budget deficits and rising debt levels across developed economies were also cited as contributing to structurally higher yields.
UBS said it continued to favour high-quality government and corporate bonds in short to intermediate maturities, while remaining cautious on long-duration debt.
Separately, UBS highlighted accelerating annual bank lending growth across the eurozone, with loans to non-financial companies growing 4.4% year-on-year in July, up from 4.0% in June.
The bank rated European financial stocks as attractive, noting the sector trades at around 11 times 2027 earnings with a dividend yield of about 5%.
UBS also raised its outlook for Japanese interest rates, forecasting the Bank of Japan will lift rates by 25 basis points in September.
