High grade

17 September 2026, 22:15 UTC Chief Investment Office GWM Investment Research

High grade CIO View: High grade Tom Nash, Strategist, UBS AG Frederick Mellors, Strategist, UBS Switzerland AG

• We have an Attractive rating on high grade bonds. Global Asset Class Preference Attractive • Bond yields have moved higher again across the curve alongside 10-year US Treasury yield higher energy prices and more hawkish central bank expectations CIO Forecast • Investors should focus on the elevated yields levels on offer, which Positive long term trend should ensure positive total returns going forward. US 10y

• High grade bonds (rated AA- or better) offer low default risk 16 Sep 26 4.96 and therefore present an appealing risk-return profile, in our view, Dec 26 4.60 particularly in a world of heightened geopolitical risks and expensive Sep 27 4.50 risky asset class valuations. Refinitiv, UBS • Our core preference remains for short-to-medium maturities, yet the rise in long-dated government yields presents an opportunity to Note: This month, we have updated our selectively extend duration for more tactically minded investors or multi-asset asset class preference framework those looking for portfolio diversification. to bring together two useful perspectives. We continue to display absolute views • Absolute view: Attractive; Relative preference (in comparison to other (Attractive, Neutral, Unattractive), which fixed income segments): Least Preferred show our expected absolute direction for a given asset. Now, we also display relative preferences (Preferred, Neutral, or Least Bond market returns have been impacted by a further rise in benchmark Preferred) to make it easier for investors to yields during September. This has weighed on the performance of fixed see which assets we like more—or less— income segments with longer durations and interest rate sensitivity such as than the alternatives within their asset class High Grade (HG). Unlike earlier in the year, where rising term premium was or across asset classes. For more information, a notable driver, recent developments have been characterized more by a please see the latest UBS House View reassessment of the likely path of short-term interest rates as the Federal Monthly Extended. Reserve has become the latest central bank to deliver policy tightening.

Our core thesis is that current yield levels offer an attractive combination of income, diversification, and medium-term return potential. While renewed energy price spikes, stemming from events in the Middle East remain a key source of uncertainty, so far the evidence across the major markets is that underlying inflation pressures appear relatively contained. As a result, markets are currently pricing monetary policy settings that are tighter than those we expect to ultimately be delivered. While our core preference remains for portfolios to be positioned in short-to-medium maturities, tactical investors should be on the lookout for opportunities to selectively extend duration in high-quality government debt. We have been more cautious on longer maturities given considerations around government debt dynamics, policy uncertainty and bond supply. Yet these concerns appear to be increasingly reflected in long-dated yields that have now reached multi-decade highs across most major currencies.

This report has been prepared by UBS Switzerland AG. Please see important disclaimers and disclosures that begin on page 4.

USD 10-year Treasury yields moved to a 5.04% in September, their highest level since the Global Financial Crisis, weighing on US HG returns. Chair Warsh's more hawkish performance at Jackson Hole alongside modestly higher- than-expected August inflation data cemented expectations for a 25bps rate hike in September that has been duly delivered. The recent sell-off has been amplified by policy uncertainty as the market has had to get used to the new Fed chair's communication strategy. Our view has been that this will get ironed out over time, and we see September's decision and press conference as a further step toward policy orthodoxy which should ultimately help stabilize term premium.

Our core view remains that the 2- to 5- year…