UBS Upgrades High‑Yield Bonds to Attractive

UBS Upgrades High‑Yield Bonds to Attractive

UBS has upgraded the rating of high‑yield corporate bonds to “attractive”, reflecting an improved total‑return outlook. The bank notes that bond yields have risen in recent months as central‑bank policy‑rate expectations were repriced, driven by higher energy prices and the possibility of second‑round inflationary effects. Despite this yield increase, year‑to‑date total returns remain positive, which UBS attributes to an elevated carry component, a low‑duration profile, and credit spreads that have stayed largely range‑bound even amid the energy price shock.

UBS explains that the low volatility in spreads is supported by continued stable economic activity, solid corporate balance‑sheet fundamentals, low default risk and demand based on yield. The bank expects these conditions to persist. Looking forward, the combination of elevated yields, low duration and low default risk leads UBS to project that high‑yield bonds are well positioned to generate total returns in the high‑single‑digit percentage range over the next twelve months.

In its base‑case scenario, UBS anticipates that total returns will be driven primarily by carry and duration, while high‑yield spreads may widen only modestly.