UBS urges investors to seek refuge in US Treasury, gold on heightened recession concern in second half
- There is a strong chance of the US entering a recession, but it is likely to be mild, says Hu Yifan of UBS Wealth Management
- Gold may test a high of US$2,000 an ounce in the next six months as the dollar comes under pressure from the easing of interest rate
Investors should add haven assets like bonds and gold to their portfolios as the US is likely to slide into a recession, prompting the Federal Reserve to unwind financial tightening and the US dollar to weaken, according to UBS Wealth Management.
The consensus view is that the recession may occur in the third or fourth quarter after 10 consecutive interest-rate increases by the Fed, which would send bond yields down and pummel the US dollar, said Hu Yifan, chief investment officer for Asia-Pacific at the investment advisory unit of UBS Group, at a webinar on Monday.
Gold may test a high of US$2,000 an ounce in the next six months, while US stocks are likely to come under pressure because of their high valuation and bleak growth prospects, she said.
“The bond market has become pretty attractive now and it may turn into the biggest bull market in a decade,” said Hu. “Gold is another preferred asset allocation. It’s negatively correlated with the US dollar and inflation, and all these positive factors are still out there in the second half.”
The yield on the two-year US Treasury is 86 basis points more than on the 10-year notes, a scenario known as an inverted yield that typically foreshadows a looming recession. Yields have surged this year as the Fed remains hawkish in bringing inflation down to its 2 per cent target. The two-year debt now yields 4.8492 per cent, close to a 17-year high, while the 10-year note yields 3.9838 per cent, near a 16-year high.