There is great uncertainty around the severity of tariffs that will be introduced by the US this week, with UBS reporting client baseline expectations ranging from 10% to 25%.
The firm predicts that measures will focus on the top 10-20 trading partners, sectoral tariffs will remain at 25% and country tariffs will average around 15%.
“Most clients we met do not have strong views on potential retaliation by the EU,” it noted.
Considering the impact on Bunds, UBS expects yields to fall – especially if tariffs exceed 10%. The bank has amended its 10-year Bund target from 2.70% to 2.60%, dropping the stop from 3.05% to 2.80%.
Between June and December, 19 bps are priced in for ECB cuts. UBS believes that further cuts will be introduced in H2 if US tariffs are greater than 10%.
“If the ECB does not cut in April, we can also see the ECB cutting more in the second half of 2025 than the 19 bps of cuts currently priced,” it added. Further cut price-ins could also be introduced if global risk sentiment worsens in the near future.
In the US, UBS expects 2-year US yields to settle closer to its 3.65% 2025 forecast. The prediction follows 56% returns in US equities over the last two years and a cyclical pick-up in Q4 2024, it explained.
The bank added that clients holding 10-year US Treasuries are likely to remain range-bound around current levels in response to further uncertainty around inflation.
©Markets Media Europe 2025
