Live Markets-Bullish on bonds as ECB market pricing is too hawkish - UBS

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The European Central Bank on Thursday delivered what analysts described as a "hawkish hold", leaving rates unchanged while signalling that another rate hike, widely expected in September, remains on the table.

UBS Wealth Management strategists are comfortable with that outlook and continue to expect an ECB rate hike after the summer, but they view market pricing, which implies the deposit rate climbing towards 3% over the next 12 months, as overly hawkish.

“We continue to expect bond yields to fall over the next 12 months and see value in euro zone fixed income amid elevated starting yields, supportive technicals, and resilient fundamentals,” the Swiss wealth manager's chief investment office said in a note.

“We favour medium tenors and believe investors can selectively extend into longer maturities, out to 10 years, with government bonds from Germany, the Netherlands, and Austria,” it adds.

“In credit, selectivity remains important with spreads near cyclical tights, but A/BBB rated bonds in short to intermediate maturities still offer attractive carry.”