UBS On-Air: Market Moves Top of the Morning: Fixed Income market update & outlook
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Mar 25, 2026 Letty Zemaitis, Fixed Income Strategist focused on credit and AI disruption in credit markets. Leslie Falconio, Head of Taxable Fixed Income Strategy, providing yield forecasts and positioning guidance. They discuss market moves from geopolitical shocks, a 10-year yield outlook and preferred duration, and how AI is beginning to influence credit stress in software and loan recovery risks.
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Market Moves Are About How Fast Rates Change
- Fixed income reacts more to speed of change than absolute levels. The 10-year jumped ~50 bps in ~2.5 weeks from ~3.95% to ~4.40% driven by rapid sentiment shift after geopolitical events.
- Rapid moves raised volatility and crushed total returns despite limited spread widening, showing rate-driven losses dominate in short bursts.
Energy Moves Broke Safe Haven Dynamics
- Recent volatility has been supply and energy-price driven, breaking usual safe-haven correlations. Oil-driven moves pushed both equities and fixed income lower, removing typical flight-to-quality behavior.
- Markets focused on inflation risk first, not second-order growth slowdown, amplifying rate moves.
Add Short Duration Treasuries Incrementally
- Add interest-rate exposure incrementally in the two- to five-year area rather than long duration. Shorter-duration Treasuries offer current income plus potential price gains if Fed cuts materialize later this year.
- Avoid long 10-year-plus duration due to elevated near-term volatility and headline-driven repricing risks.