Bond markets

21 August 2026, 10:15 UTC Chief Investment Office GWM Investment Research

Bond Theme Focus Bond markets Authors: Fabrice Schwarzmann, CFA, Analyst, UBS Switzerland AG; Thomas Wacker, CFA, Head CIO Credit, UBS Switzerland AG; Rochus Baumgartner, Co-Head CIO Credit, UBS Switzerland AG; Alexandra Bossert, CFA, Analyst, UBS Switzerland AG; Geoff Wan, CFA, Analyst, UBS AG London Branch; Chris Ptak, Analyst, UBS Switzerland AG

• We highlight key investment ideas linked to our Messages in Focus reflecting our views across regions, industries, and ratings.

• Investors interested in our Messages in Focus and thematic ideas can find specific bond baskets that are available in several currencies and are updated on a regular basis.

Overview of our Messages in Focus theme. With credit spreads close to all-time lows, investors Lock in yields: Current bond yields provide an opportunity to can earn higher spread income by exploiting cross-currency lock in attractive income and strengthen portfolio resilience. relative value opportunities in an issuer's bond structure and We favor quality bonds with short- to medium-term capturing the foreign issuer discount. maturities, which could perform particularly well if growth slows materially and interest-rate expectations decline. For related research and additional recommendations, please refer to our publications available on the CIO portal: In our Quality income investment theme, we identify attractive opportunities to lock in carry yields from • Conviction calls to put cash to work (12 August 2026) investment grade corporate bonds with medium tenors. While investors in economies with low interest rates may • Quality income (1 April 2026) not derive much income from quality bonds, they should • Cross-border bonds (22 September 2025) remember their portfolio diversification benefits in an adverse economic scenario. Investors can find opportunities • Bond Top List in our diversified bond baskets in USD, EUR, CHF, and GBP. • Bond Market Slides While we continue to see carry opportunities in corporate bonds, we believe investors looking to earn higher returns should maintain a selective and risk-aware approach. In our Selectivity matters investment theme, we provide bond baskets in USD, EUR, CHF, and GBP, where a core of defensive and quality corporate bonds is complemented by select lower-rated and subordinated instruments as satellite positions.

Finally, investors seeking broader regional diversification and opportunities in mispriced risk premiums arising from home bias may benefit from our Cross-border bonds investment

This report has been prepared by UBS Switzerland AG, UBS AG London Branch. Please see important disclaimers and disclosures at the end of the document.

Bond investment themes Quality income

We see a compelling opportunity to lock-in attractive energy supply shock were to push European carry yields by investing in investment-grade (IG) economies into recession—yields would likely reverse corporate bonds with medium-term maturities. Thanks their recent increases as markets would anticipate rate to upward-sloping yield curves, these medium-tenor cuts. The principal risk to total returns from high- bonds not only provide solid carry yields but also offer quality bonds would arise if economic growth remains potential curve-rolldown gains. While we anticipate resilient while inflation stays elevated, leading to a that central banks will closely monitor the inflationary series of rate hikes. Nevertheless, even in this effects of rising energy prices, we believe they will environment, we believe carry yields could still help to pursue easier interest rate policies than currently achieve modestly positive total returns over the next priced into the bond market. We expect bond yields to 12 months. decline by year-end, with total returns for medium- tenor IG bonds driven by both carry income and price Thomas Wacker, CFA, Analyst appreciation. In a downside scenario—if a sustained

Bond valuation: Quality income YTM / YTC (%) over maturity / call date

Source: UBS, as of 20 August 2026 9:30am CET