UBS wealth arm tells clients to shed negative yielding emerging market debt

LONDON: UBS Global Wealth Management is recommending clients holding negative-yield emerging market debt to sell their exposure as a dovish shift in central banks' monetary policy pushes the yield on more bonds into negative territory.

Forty of the more than 3,000 emerging market bonds covered by UBS's wealth management arm have now zero or negative yields, said Jerome Audran, emerging markets analyst at UBS Global Wealth Management. The negative yielding bonds are denominated in euros and Swiss francs.

"The outstanding amount of negative yielding bonds is increasing due to the dovish shift in global central banks' monetary policies," he said in emailed comments to Reuters.

"We rate many of them as expensive, as we expect them to post very low to negative returns over the short-to-medium term and underperform similarly-rated EM [emerging market] peers."

After the recent dive in the euro zone's 10-year benchmark German government bond yield, other euro government and corporate debt have been dragged into negative territory, including some emerging market bonds.

UBS Global Wealth Management maintained its moderate overweight on high-yield credit in its emerging marketS portfolio, said Audran, adding those bonds were expected to outperform investment grade peers in the near term.

"While the global fixed income market is artificially boosted by very accommodative global liquidity conditions we think this should remain a positive credit catalyst for EM USD [US dollar] bonds in the near term," he added.