Prioritise liquidity needs when rates come down - UBS
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PRIORITISE LIQUIDITY NEEDS WHEN RATES COME DOWN - UBS
The tide is turning in the global monetary policy cycle and UBS recommends making liquidity needs a key priority in a lower rate environment.
There might be jitters around timing, but disinflation is well underway, according to the Swiss bank.
Markets show traders are betting on a rate cut from the European Central Bank when it meets on June 6. The Bank of England is expected to follow, most likely in November, while Federal Reserve is expected to cut at least once by the end of the year.
"Moreover, when these central banks begin easing policy, it is likely to be the start of a cycle that should see rates some 150 to 200 basis points lower from the peak by the end of 2025," write the UBS economists.
A return to ultra-low interest rates of the post-GFC era is unlikely, but some divergence is expected to emerge amongst economies, with growth in Europe and Asia growth expected to lag that of the U.S.
So how to invest? Managing liquidity needs is key, says UBS who warn that current returns on cash will not be available for much longer.
Bond-ladder strategies are a good option for medium-term cash requirements, while longer-term requirements might benefit from structured investment strategies that offer capital preservation features.
"...adding to a portfolio of quality bonds at current yields can also help to lock in a healthy income stream with the potential for capital appreciation as interest rate cuts lead to lower bond yields."
A balanced equity bond portfolio is another option, the bank said.
(Lucy Raitano)
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