Kevin Zhao, head of global sovereign strategy at UBS Asset Management, has decided to short US Treasuries. He believes that the current strength of the US economy is diminishing the appeal of government bonds.
Current Market Conditions
As of July 11, 2026, the yield on the 10-year Treasury was 4.53%. Zhao intends to capitalize on potential price rallies by selling Treasuries, particularly if yields drop below 4.3%. This approach treats any increase in bond prices as an opportunity rather than a deterrent.
The UBS Global Dynamic USD fund has performed well, returning 2.3% year-to-date, which places it ahead of nearly 90% of similar funds. The retail version has also shown a respectable 1.5% return during the same period.
Economic Insights Behind the Strategy
Zhao's analysis highlights the resilience of the US economy, which has been able to withstand energy shocks without significant growth disruptions. He attributes part of this stability to the advantages brought by AI-driven investments, which continue to bolster American economic performance.
Interestingly, Zhao is not taking a broad bearish stance on bonds. Instead, he sees a relative value opportunity, particularly in comparison to German bunds. The European economy appears more vulnerable to energy price fluctuations and is expected to gain less from the ongoing AI investment boom.
He plans to buy German bunds if yields rise by another 10 basis points from their current level of 3.12%. This strategy effectively positions him to short US duration while going long on German duration, reflecting his belief in the diverging economic paths of the US and Europe.
This material is for informational purposes only and does not constitute financial advice.
