Here's how high the 10-year Treasury yield needs to rise before income investors should worry, according to UBS
UBS lays out the levels where the income cushion doesn't protect investors from capital losses anymore.
TL;DR
- Current elevated Treasury yields provide an income cushion against potential further price declines.
- Significant yield increases are needed for capital losses to offset earned income: ~65 bps for 10-year, 225 bps for two-year, and 110 bps for five-year.
- Investors are advised to focus on short-maturity bonds to reduce duration risk.
- Opportunities exist in medium- to long-duration bonds for those comfortable with volatility, but caution is advised for the longest maturities due to fiscal concerns and AI-rated issuance.
- Attractive yields are available at two-decade highs, with short and intermediate maturities being particularly sensible.
- Investment-grade corporate bonds and high-yield bonds are recommended, with the latter noted as having a relatively high-quality index characteristics.
- The market is pricing in a high probability of another Federal Reserve rate hike in December.