UBS analysts highlight value in short-dated debt amid bond rout

Long-term government bonds are getting hammered across the developed world. UBS thinks that’s exactly why investors should be paying attention to the short end of the curve. Analysts at UBS’s Chief Investment Office published a detailed case on August 18 for owning short- and medium-maturity bonds, arguing that elevated starting yields on these instruments create an income cushion fat enough to weather further rate volatility. Their thesis is straightforward: the front end of the yield curve has remained relatively calm while the back end has caught fire, and that divergence is an opportunity. The long end is melting down The numbers paint a stark picture. The 30-year US Treasury yield has pushed past 5.31%, a level the market hasn’t seen since 2007. That’s pre-financial crisis territory. It’s not just an American phenomenon. Germany’s 30-year Bund has climbed to 3.75%, its highest since 2011, while UK gilts are flirting with multi-decade peaks of their own. UBS identifies several forces converging to drive long yields higher. Persistent inflation concerns top the list, followed by fiscal worries as governments continue running large deficits. A weaker-than-expected auction for the...