Change USD bonds for currency – UBS

The euro last week fell to its lowest level against the US dollar since 2017, and is now down 3% since the start of 2020. The UBS Chief Investment Office advises European and Swiss to consider currency risks.

Key quotes

“The euro’s fall reflects concerns about the slowdown in Eurozone growth, as data showed German industrial production has contracted , and low Eurozone interest rates and persistent currency weakness have led many euro-based investors to seek higher returns in USD bonds. But we believe that unhedged exposure to USD bonds by Euro and Swiss investors is now a crowded trade.”

“Given our currency forecasts and the narrowed yield gap, we think European and Swiss investors holding unhedged USD bonds should carefully consider currency risks. We recommend that CHF investors switch from USD into EUR credit. EUR investors also should reconsider their USD bond exposure.”