Investment grade corporate bonds Preference: overweight Current global spread (26 June): 225bps (last month: 225bps) Recommendations UBS View Spread target (6-month): 170bps Tactical (6 months) ° We expect investment grade (IG) corporate bonds to achieve a total return of around 3% over the next ¢ We still see room for tighter yield spreads; six months. Our spread target of 170bps is based on our benign economic outlook, ongoing investor the return outlook compares very appetite for income-generating assets and expected negative net issuance. This target spread is still above favorably to government bonds. its 15-year average of 130bps. e Internationally diversified companies from ¢ Non-financial corporates: While total yields are at record lows, the pickup over government bonds and non-financial sectors offer a stable and money market rates is attractive. Aggressive re-leveraging by companies looks unlikely in the current relatively safe income stream for environment. Credit quality should remain good and non-financials continue to deliver a stable income. conservative investors. ¢ Financial corporates: Due to regulatory challenges, spreads are expected to remain above past averages. | ° We recommend bonds from the lower IG Total returns could outpace non-financials, but volatility will be considerably higher. rating segments (BBB and A) over higher- ¢ Overall, IG corporate bonds remain a preferred asset class, providing an attractive yield pickup. The asset rated issuers. class offers relatively low volatility and a benign total return outlook. We expect lower-rated issuers (BBB Strategic (1 to 2 years) and A) to outperform higher-rated ones. . e We prefer corporate over sovereign assets A Positive scenario Spread target (6-month): 140bps given companies’ robustness compared to the structural weakness of public finance ¢ Global growth accelerates more forcefully than expected. This could compress spreads to closer to pre- in many countries. crisis levels. Soreads