Lock in yields

21 August 2026, 11:39 UTC Chief Investment Office GWM Investment Research

Lock in yields Lock in yields Author: Sagar Khandelwal, Strategist, UBS Switzerland AG

• Why? 1) Quality fixed income can play an important role as both a source of income and a portfolio hedge. 2) A combination of high-grade bonds and select higher-yielding segments can help investors build more resilient and diversified portfolio income. 3) Equity income, structured income strategies, and multi-asset income approaches can further broaden income sources across asset classes.

• Why now? 1) The recent sell-off in global bond Currently attractive bond yields allow investors to lock in markets has created an opportunity to lock in attractive income and strengthen portfolio resilience, in particular yields, particularly in short- and medium-maturity in quality short- and medium-maturity bonds. Source: Jason Leung_Unsplash quality bonds. 2) We believe bond yields are pricing in too much further tightening from major central banks, which could support returns if easing expectations build. 3) Elevated yields and high real rates in areas such as emerging markets make this a good time to diversify income exposure beyond traditional fixed income segments.

Current bond yields provide an opportunity to lock in decade and offer a meaningful cushion against further attractive income and strengthen portfolio resilience. We increases in interest rates. We believe current market pricing favor quality short- and medium-maturity bonds, which still reflects overly aggressive expectations for further policy could perform particularly well if economic growth slows tightening, and quality bonds could benefit if economic data materially and interest-rate expectations decline. Building lead investors to scale back those expectations. this exposure now can diversify equity risk while reducing reinvestment risk if yields fall. After many years of strong equity performance, investors have an opportunity to rebalance toward bonds, bring Build core exposure to quality short- and medium- allocations back in line with long-term plans, and diversify maturity bonds sources of portfolio returns. We also see scope to extend Long-term government bond yields have risen sharply amid duration selectively in the Eurozone. elevated bond supply and persistent concerns over inflation and fiscal deficits. But we do not think this undermines the Seek diversified exposure through select credit and case for quality fixed income. Rather, it reinforces the need equity income strategies for selectivity. With the long end of the curve more exposed For a holistic and well-diversified fixed income allocation, to fiscal concerns, inflation uncertainty, and lower liquidity, especially for investors relying on their portfolios for income, we continue to favor quality short- and medium-maturity we like select exposure to more growth-sensitive and bonds. higher-yielding bond-market segments such as emerging market credit, high yield, and subordinated debt. Amid Elevated starting yields provide investors with a stronger geopolitical and sector-specific risks, investors should avoid income base than was available for much of the previous overexposure to any single segment of the credit market.

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

Corporate fundamentals remain healthy, with balance sheets generally in good shape despite higher borrowing costs and an uncertain economic backdrop. However, rising performance dispersion across sectors and issuers reinforces the importance of selectivity.

Investors seeking more defensive ways to access higher- yielding bonds may also consider select exposure to subordinated debt, including corporate hybrid bonds. These instruments are issued by non-financial companies and combine characteristics of conventional corporate bonds, such as regular interest payments, with some equity- like features, including subordination, potentially no fixed maturity date, and the ability to defer coupon payments.

Looking across asset classes, we believe equity income strategies, yield-generating structured…