Global Strategy "Rates Map - Bonds in a risk cycle like no other" De Bock

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Global Strategy "Rates Map - Bonds in a risk cycle like no other" De Bock

en inflation rates contained. Fading such

large moves has worked well except during the Global Financial Crisis in '08, during the

taper tantrum in May '13, and in '22-23, when the market took real rates higher still as

central banks were responding to a large inflation shock. Nominal German and US yield

tend to follow real rates directionally, with the exception of the global financial crisis

when nominal yields trades lower with equities, even as real rates still rose. The Iran

conflict has failed to trigger a classic risk-off. But the bond market reacted rationally —

two-year rates rose faster than ten-year rates, reflecting expected central bank

tightening in response to an unexpected inflation shock. In our forecasts from March,

Q2 was going to be the worst quarter for long-term bonds.

Spillovers limit ECB hawkishness - Receive July. Long 10y bunds

The past month illustrated once more that the US sets the global bond tide, even if the

international system is becoming more fragmented (Figure 5SpiloversfromUS10ytotherestofG10). We have been long bunds

as we expected the 10y spreads between the US and Germany to rebound to 150 bps.

Markets have priced in a total of ~70 bps of ECB hikes for '26 as pricing on the Fed

turned more hawkish. This happened even as UBS sees increased downside risks to its

'26 GDP forecast of euro area growth of 0.8% after the Q1 GDP downward revision to

-0.2% q/q. We also expect the ECB to downgrade its growth outlook to 0.7% on

Thursday. Europe could benefit from the AI boom in the US. We have seen an increase in

AI adoption rates across jurisdictions, but Europe does not have a first-mover advantage