When to Buy the Dip in Bonds

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• Markets are pricing in just a 10%–25% probability of a negative growth shock

  60% confidence

• European high-yield credit becomes compelling at 420 basis points spread

  60% confidence

• Current credit spreads are not yet fully pricing in a potential growth shock stemming from geopolitical tensions and oil market disruptions

  60% confidence

• European investment-grade bonds become attractive near 130 basis points spread

  60% confidence

• In the event of a growth slowdown, government bonds could outperform credit

  60% confidence

• Buying opportunities for U.S. high-yield bonds emerge at spreads of around 415 basis points

  60% confidence

• Risks remain skewed to the downside, particularly if energy supply disruptions worsen

  60% confidence

• The best buying opportunities are likely to emerge only after markets more fully price in downside risks

  60% confidence

• UBS prefers a neutral stance on credit, advising investors to wait for more attractive entry levels before stepping in

  60% confidence

• Long positions in benchmark sovereign bonds, such as Germany's 10-year Bund, are attractive hedges in both downturn and recovery scenarios

  60% confidence

• Spread levels of 0.5 to 0.75 standard deviations above five-year averages historically mark a point where credit markets begin to stabilize and tighten over subsequent months

  60% confidence

• UBS does not view a severe growth shock as its base case

  60% confidence

• Credit markets remain relatively complacent, with spreads only modestly wider despite escalating risks tied to the Middle East conflict

  60% confidence

• Buying opportunities for U.S. investment-grade bonds emerge at spreads of around 115 basis points

  60% confidence