Daily Asia

23 July 2026, 21:29 UTC Chief Investment Office GWM Investment Research

Add quality bonds as yields should fall UBS House View - Daily Asia Min Lan Tan, Head Chief Investment Office APAC, UBS AG Singapore Branch Mark Haefele, Global Wealth Management Chief Investment Officer, UBS Switzerland AG Frederick Mellors, Strategist, UBS Switzerland AG Andrew Dubinsky, US Economist, UBS Financial Services Inc. (UBS FS) Leslie Falconio, Head of Taxable Fixed Income Strategy, CIO Americas, UBS Financial Services Inc. (UBS FS) Daisy Tseng, Strategist, UBS AG Singapore Branch Dean Turner, Economist, UBS AG, UBS AG London Branch

From the studio What to watch: 24 July Video: Top of Mind in APAC | The current bull market and risks to • Japan June inflation watch (5 mins) Video: Market Playbook | Why investors should revisit Europe (4 • England June retail sales mins) • S&P Global July flash PMIs for Eurozone and the US Video: The Deep Dive | Upgrading India (6 mins)

Thought of the day US Treasury yields are approaching their recent highs in May as escalating hostilities in the Middle East and rising energy prices have rekindled inflation fears and concerns that the Federal Reserve may need to raise policy rates in the near term. The 10-year Treasury yield stood at 4.7% at the time of writing, surpassing its May peak of 4.68%.

Media reports said that the Iran-aligned Houthis attacked two Saudi oil tankers in the Red Sea as part of a naval blockade on Saudi Arabia, disrupting another vital waterway for global energy supplies. The US has continued its strikes to “further degrade” Iran’s ability to threaten ship traffic, while Iran’s Revolutionary Guards warned that no tanker would be allowed to enter or leave the Strait of Hormuz without coordination with the Islamic Republic. Brent crude oil was trading above USD 100/bbl at the time of writing, having risen by over 37% since the start of this month.

But we continue to see scope for yields to drift lower over the coming quarters, and believe quality fixed income offers an attractive combination of income, diversification, and medium-term return potential.

Energy disruptions from the Middle East should ease over time. Investors should be prepared for further hostilities, with regional mediators’ ongoing attempts to bring the US and Iran back to the negotiating table so far proving unsuccessful. But US Secretary of State Marco Rubio has said the US remains open to a diplomatic solution, and US President Trump this week claimed that oil prices will go down, saying “just give me a little time.” Our view remains that the US and Iran will eventually seek a path toward a diplomatic framework as economic pressures mount, and that oil prices could return to levels that would keep inflation under control.

This report has been prepared by UBS AG Singapore Branch, UBS Switzerland AG, UBS Financial Services Inc. (UBS FS), UBS AG London Branch. Please see important disclaimers and disclosures at the end of the document.

Price pressure should continue to moderate. Despite the flare-up in geopolitical tensions, inflation expectations remain lower than their recent peaks. The 10-year breakeven inflation rate stood at around 2.25%, compared with 2.5% in May. The consumer survey by the University of Michigan in July also showed a decline in year-ahead inflation expectations, with five-year expectations holding steady at the lowest level since March. Separately, the June consumer price index showed that monthly underlying inflation, which excludes volatile items like energy and food, fell for the first time since 2020. This supports our view that Fed policy is already sufficiently restrictive and that inflation should continue to trend lower without the need for a meaningful further increase in rates.

The next Fed move remains more likely to be a cut. Elevated AI infrastructure investment and the associated rise in asset prices have dominated US economic activity, with households on aggregate experiencing flat or negative real wage growth. With the personal savings rate nearing a historical low, and the labor market showing little evidence of tightening, we expect softer growth conditions to emerge in the coming months…