UBS AM’s Zhao Sours on Treasuries as US Growth Outpaces Europe

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Or sign-in if you have an account.oefd}8e6xcv80jl5bvu2f{xy_media_dl_1.png Bloomberg(Bloomberg) — UBS Asset Management’s Kevin Zhao is planning to short Treasuries in a bet that the robust US economy will erode the haven appeal of owning government debt.THIS CONTENT IS RESERVED FOR SUBSCRIBERS ONLYSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.SUBSCRIBE TO UNLOCK MORE ARTICLESSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.REGISTER / SIGN IN TO UNLOCK MORE ARTICLESCreate an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.THIS ARTICLE IS FREE TO READ REGISTER TO UNLOCK.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an Account“We still want to sell into rallies,” he said in an interview. “The US still has the best standing. It’s not impacted by the energy shock and still benefits the most from the AI investment boom.”On the flipside, German bunds are a great defensive bet, said Zhao, head of global sovereign and currency funds at UBS AM. The energy shock will hit economic growth in Europe harder while the region won’t benefit as much from investments into artificial intelligence, raising the appeal of German bonds.Get the latest headlines, breaking news and columns.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try againThere’s mounting concern among bond managers that faster US inflation is becoming entrenched, eroding returns and keeping interest rates elevated. The AI investment boom in the US is adding to growth and price pressures, prompting Zhao’s mostly neutral stance on Treasuries in UBS AM’s flagship macro funds, with underweight positions versus Australian and New Zealand debt.Meanwhile, the recent spike in oil prices after the latest flare-up in fighting between the US and Iran is more of a threat to growth in Europe than a driver of inflation, Zhao said. “We’re still positive on European bonds because the European economy doesn’t benefit much from the AI investment boom, while growth is getting hammered by higher energy inputs,” Zhao said.Like Europe, Asia is also dependent on energy imports. However, the drag on China and others in the region will be offset by investment in AI, bolstering their economies in the long run, according to Zhao. Zhao has outperformed most counterparts this year: the UBS Global Dynamic USD fund he manages has returned 1.5% in 2026, surpassing 74% of peers, according to data compiled by Bloomberg.If yields on longer-dated German bonds rise by another 10 basis points, “we’re going to buy,” he said. Ten-year bunds currently trade at 3.12%, not far from a 15-year high of 3.20% touched in May.The appeal of bunds will be further enhanced by next year’s general elections in France and Italy, which will crank up political risk and weigh on those countries’ debt, Zhao said. He is neutral on UK bonds, with sticky inflation and high fiscal deficits weighing on his assessment of gilts.“The combination of high inflation and high deficits, it’s just not good for bond investor,” he said.This advertisement has not loaded yet.Notice for the Postmedia NetworkThis website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. Read more about cookies here. 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